What Part D Does and Why You Need It

Part D is prescription drug insurance run by private companies under Medicare rules. It covers the cost of medications your doctor prescribes. Without it, you pay the full pharmacy price — which can be hundreds of dollars per month for common drugs. Part D is optional, but if you delay signing up when you first become may be able to access, you will pay a penalty for as long as you have Medicare.

Part D is separate from Part A (hospital) and Part B (doctor visits). You can have Original Medicare (Parts A and B) and add Part D, or you can choose a Medicare Advantage plan (Part C), which usually includes drug coverage built in. The choice between them affects which pharmacies you can use, which drugs are covered, and how much you pay.

You do not have to use Part D if you have other drug coverage — from an employer, a union, or a state program — that is at least as good as Medicare's. That coverage is called creditable coverage. If you have it, you can skip Part D without penalty, but you must tell Medicare you have it.

Key Takeaways

  • Part D is sold by private insurance companies and covers prescription drugs; you choose a plan during your initial enrollment period or during the annual open enrollment in October and November.
  • Each Part D plan has a different list of covered drugs, called a formulary, and different copays or coinsurance amounts, so comparing plans before you enroll saves money.
  • You pay a monthly premium, annual deductible, and then copays or coinsurance until you reach a spending threshold called the donut hole, where coverage temporarily shrinks.
  • If you miss your initial enrollment window, you will pay a permanent penalty on top of your premiums for every month you were without Part D.
  • You can switch plans once a year during open enrollment, and you should review your plan every year because drug prices and formularies change.

When You Can Enroll in Part D

You have a seven-month initial enrollment period that starts three months before the month you turn 65 and ends three months after. If you enroll during the first three months (before you turn 65), your coverage starts the month you turn 65. If you enroll in the month you turn 65 or later, there is a one-month delay before coverage begins.

If you miss that window and do not have creditable coverage, you can still enroll during the annual open enrollment period, which runs from October 15 to December 7 each year. Coverage starts January 1. Outside these windows, you cannot enroll unless you have a may have access to life event — such as losing employer coverage, moving out of your plan's service area, or becoming may be able to access for Medicaid.

If you do not enroll when you are first may be able to access and you do not have creditable coverage, Medicare charges you a late enrollment penalty. The penalty is 1 percent of the national average Part D premium for each month you were without coverage. That amount is added to your premium permanently, even if you enroll later. For example, if you delay enrollment by two years (24 months) and the national average premium is $35, your penalty would be about $8.40 per month for life.

How Part D Plans Are Structured and What You Pay

Every Part D plan has four payment stages. First, you pay a monthly premium — the cost of the plan itself. This varies by plan and by region, typically ranging from $7 to $100 per month, though some plans have no premium.

Second, you pay an annual deductible before the plan starts to help pay for drugs. Not all plans have a deductible, and those that do can set it anywhere up to $545 in 2024 (this amount changes yearly). Once you have paid the deductible out of pocket, the plan begins to share costs with you.

Third, you pay copays or coinsurance for each prescription. A copay is a flat amount — for example, $5 for a generic drug, $15 for a brand-name drug. Coinsurance is a percentage of the drug's cost — for example, 25 percent. Different drugs on the same plan can have different copays. The plan's list of covered drugs and their costs is called the formulary. You must check the formulary before you enroll to see whether your medications are covered and at what cost.

Fourth, once your total out-of-pocket spending reaches a certain threshold (called the donut hole threshold, set at $11,000 in 2024), your coverage temporarily shrinks. You then pay a higher percentage of drug costs until your out-of-pocket spending reaches a second threshold (catastrophic coverage threshold, set at $14,500 in 2024). After that, the plan covers most costs and you pay only a small copay. The exact amounts change every year.

Choosing a Part D Plan

You choose from plans offered in your state. The number of plans available varies — some states have 20 or more options, others have fewer. Each plan is run by a different insurance company and has its own formulary, copays, and network of pharmacies.

To compare plans, use the Medicare Plan Finder tool on Medicare.gov. Enter your current medications and the pharmacies you prefer to use. The tool shows you which plans cover those drugs, what the copays are, and what your estimated annual cost would be. This is the fastest way to find the cheapest plan for your specific situation.

If you do not have internet access or need help, call 1-800-MEDICARE (1-800-633-4227). A counselor can walk you through plan options over the phone. You can also contact your State Health Insurance information Program (SHIP), which offers free counseling. Find your state's SHIP at shiptalk.org.

When you compare plans, look at three things: the monthly premium, the annual deductible, and the copays for your specific drugs. A plan with a low premium might have high copays, so the cheapest plan is not always the one with the lowest premium. Use the Medicare Plan Finder estimate to see the total cost, not just the premium.

How to Enroll in a Part D Plan

You can enroll online at Medicare.gov, by phone at 1-800-MEDICARE, by mail, or in person at a local Social Security office. Online enrollment is fastest — you can complete it in 10 to 15 minutes if you have your Medicare card and know which plan you want.

To enroll online, go to Medicare.gov, sign in with your username and password (or create an account), and select "Enroll in a plan" under the Medicare Plans section. You will be asked to choose a plan and confirm your contact information. Once you submit, you should receive a confirmation email. Your plan will send you a welcome packet with your member ID card, formulary, and pharmacy network information.

Coverage typically starts the first day of the month after you enroll, though the exact date depends on when you enroll. If you enroll before the 15th of a month, coverage usually starts the first of the next month. If you enroll after the 15th, coverage may start the first of the month after that.

What Happens If Your Drug Is Not Covered

If a medication you take is not on your plan's formulary, or if it is covered but requires prior approval from the insurance company, you have options. You can ask your doctor to prescribe a different drug that is on the formulary. You can request an exception from the plan — a formal request to cover a drug that is not normally covered. You can also switch to a different Part D plan during open enrollment if another plan covers the drug at a lower cost.

To request an exception, contact your Part D plan directly. You will need your doctor to submit a letter explaining why that specific drug is medically necessary. The plan must respond within 72 hours for urgent requests or 7 days for standard requests. If the plan denies the exception, you can appeal.

Some plans require prior authorization before they will pay for a drug — meaning your doctor must get approval from the insurance company before you fill the prescription. Others require you to try a cheaper drug first before they will cover a more expensive one; this is called step therapy. Check your plan's formulary to see which drugs have these restrictions.

Changing Your Plan or Stopping Part D

You can switch to a different Part D plan once per year during open enrollment (October 15 to December 7). Your new coverage starts January 1. You do not need a reason to switch — you can change plans straightforward because you found one with lower costs or better coverage for your medications.

If you want to drop Part D entirely and you have creditable coverage from another source, you can do so at any time. You must notify Medicare and your current plan in writing. If you drop Part D without creditable coverage and later want to re-enroll, you will owe the late enrollment penalty.

If you are in a Medicare Advantage plan and want to switch to Original Medicare with a separate Part D plan, you can do so during the annual open enrollment period or during the Medicare Advantage open enrollment period (January 1 to March 31). The switch takes effect the first of the following month.

Understanding the Donut Hole and Catastrophic Coverage

The donut hole is a coverage gap that occurs after you and your plan have spent a combined $11,000 on covered drugs in a calendar year (2024 amount). Once you enter the donut hole, you pay a higher percentage of drug costs — typically 25 percent for brand-name drugs and 25 percent for generics, though the exact amount depends on your plan.

You stay in the donut hole until your out-of-pocket spending reaches $14,500 (2024 amount). Once you reach that threshold, you enter catastrophic coverage, where the plan covers most of the cost and you pay only a small copay (typically $3.95 for generics and $9.85 for brand-name drugs in 2024).

The donut hole shrinks a little each year by law, and manufacturers are required to offer discounts on brand-name drugs while you are in it. Still, the donut hole can be expensive if you take multiple medications or high-cost drugs. When you compare plans, ask whether the plan's copays in the donut hole are higher than in other plans, because some plans offer better coverage in the gap than others.

Frequently Asked Questions

What happens if I do not enroll in Part D when I turn 65?

If you do not have other drug coverage, you can still enroll during the next open enrollment period (October 15 to December 7), but your coverage will not start until January 1 of the following year. You will also owe a late enrollment penalty of 1 percent of the national average Part D premium for each month you were without coverage, and that penalty stays on your premium permanently.

Can I use any pharmacy with Part D?

Each Part D plan has a network of pharmacies where you can fill prescriptions at the plan's copay rate. You can use pharmacies outside the network, but you will pay more. Most plans include major chains like CVS, Walgreens, and Walmart, plus local independent pharmacies. Check your plan's pharmacy network before you enroll if you have a preferred pharmacy.

What if my income is low — do I pay less for Part D?

Yes. If your income is below 150 percent of the federal poverty level, you may be may be able to access for Extra Help, a federal program that pays most or all of your Part D costs. You can explore through Social Security or at your local Medicaid office. If you receive Medicaid, you are automatically may be able to access for Extra Help.

Can I use Part D at pharmacies outside the United States?

No. Part D only covers prescriptions filled at pharmacies in the United States. If you travel abroad, you will need to pay out of pocket for medications or arrange to have prescriptions mailed to you from a U.S. pharmacy. Some plans offer limited coverage for emergency medications while you are traveling, so check your plan documents.

What if my plan stops offering Part D in my area?

If your plan is discontinued, Medicare will send you a notice and you will have the right to switch to a different plan outside the normal open enrollment period without penalty. You will have at least 30 days to choose a new plan. If you do not choose one, Medicare will automatically enroll you in another plan in your area.