What PDP Stands For and How It Works in Medicare

PDP stands for Prescription Drug Plan

A Prescription Drug Plan (PDP) is a Medicare insurance option that covers the cost of prescription medications. It is separate from your medical insurance — you buy it on its own to add drug coverage to Original Medicare (Parts A and B), or you may already have it bundled into a Medicare Advantage plan.

PDPs are run by private insurance companies that contract with Medicare. Each company decides which drugs it will cover, how much you pay, and which pharmacies you can use. The drugs covered and the costs change every year, which is why you need to review your plan annually during the open enrollment period.

If you take prescription medications regularly, a PDP can reduce what you pay at the pharmacy. Without one, you pay the full price for most drugs, which can be hundreds of dollars per month for common medications.

Key Takeaways

• A PDP is a prescription drug insurance plan you add to Original Medicare to cover the cost of medications.
• You choose a PDP during the annual enrollment period (October 15 to December 7), and coverage starts January 1.
• Each PDP has a different list of covered drugs, copays, and pharmacies, so comparing plans can save you money.
• If you do not have a PDP or other drug coverage and miss the enrollment important date, you may pay a penalty when you join later.

How a PDP works with Original Medicare

Original Medicare covers hospital care (Part A) and doctor visits (Part B), but it does not cover most prescription drugs. A PDP fills that gap. You pay a monthly premium to the insurance company, and then when you fill a prescription at a pharmacy, you pay a copay or coinsurance (a percentage of the drug cost).

The amount you pay depends on which "tier" your drug is on. Tier 1 drugs (usually generics) have the lowest copay. Tier 2 and 3 drugs cost more. Tier 4 and 5 drugs, often brand-name medications, have the highest copays. Your plan's formulary — the official list of covered drugs — tells you which tier each drug is on.

You must use a pharmacy in your plan's network. Most large chains like CVS, Walgreens, and Walmart participate in most PDPs, but some smaller pharmacies do not. Mail-order pharmacies are also an option for medications you take regularly.

When you can enroll in a PDP

The main time to join a PDP is during the Annual Enrollment Period, which runs from October 15 to December 7 each year. Coverage begins January 1 if you enroll by December 7. If you miss this window, you can only join during the General Enrollment Period (January 1 to March 31), but coverage does not start until the month after you enroll.

You have a special enrollment period if you lose drug coverage for a reason beyond your control — for example, if your employer stops offering retiree coverage or you move out of your plan's service area. You have 63 days from the date you lose coverage to join a new PDP without penalty.

If you are newly may be able to access for Medicare, you have two months from the month you turn 65 to join a PDP without penalty. If you delay beyond that window and do not have other creditable drug coverage, you will owe a late enrollment penalty when you do join.

The costs you will see

A PDP has several costs. First is the monthly premium, which varies by plan and can range from under $10 to over $100 per month. Second is the annual deductible — the amount you pay out of pocket before the plan starts paying. Many PDPs have no deductible, but some do.

Once you meet the deductible, you pay a copay or coinsurance for each prescription. Generic drugs typically cost $5 to $15 per fill. Brand-name drugs can cost $30 to $100 or more, depending on the tier. Some plans have a coverage gap (sometimes called the "donut hole"), where you pay a higher percentage of drug costs after you and your plan have spent a certain amount together.

There is also a catastrophic coverage phase. Once your out-of-pocket costs reach a certain limit (which changes yearly), the plan covers most of the cost of your drugs for the rest of the year. This protects you if you have very high drug costs.

How to choose a PDP

Start by listing the prescription medications you take regularly. Then use the Medicare Plan Finder tool on Medicare.gov to see which PDPs cover those drugs and at what cost. The tool shows you the monthly premium, deductible, copays, and whether your pharmacy is in the network.

Compare at least three plans. A plan with a low premium might have high copays, while a plan with a higher premium might cover your drugs at a lower cost overall. The Plan Finder calculates your estimated yearly cost for each plan based on your actual medications, so you can see the real difference.

Check whether your current pharmacy is in the network. If your preferred pharmacy is not covered, you can either switch pharmacies or choose a different plan. Some people find that mail-order is cheaper for maintenance medications they take every month.

What happens if you do not have a PDP

If you have Original Medicare and no drug coverage, you pay the full price for prescriptions. Generic drugs at major pharmacies often cost $10 to $30 per month, but brand-name drugs can cost $100 to $500 or more. Over a year, this adds up quickly if you take multiple medications.

If you go without a PDP and later decide to join one, you may owe a late enrollment penalty. The penalty is 1% of the national average PDP premium for each month you were without coverage. If the average premium is $35 and you waited 12 months to join, you would pay an extra $4.20 per month for as long as you have the plan. The penalty is permanent and increases each year.

The exception is if you have other creditable drug coverage — meaning coverage that is at least as good as a PDP. This includes coverage through a current or former employer, TRICARE (military coverage), the Veterans Health Administration, or a state pharmacy information program. If you have creditable coverage, you do not owe a penalty when you join a PDP later.

Frequently Asked Questions

Can I switch PDPs after I enroll?

Yes, during the Annual Enrollment Period (October 15 to December 7) you can switch to a different PDP. Your new coverage starts January 1. Outside this window, you can only switch if you have a may have access to life event, such as moving to a new state or losing employer coverage.

What is the difference between a PDP and a Medicare Advantage plan?

A PDP is drug coverage only — you use it with Original Medicare for medical care. A Medicare Advantage plan (Part C) is an all-in-one plan that includes medical, hospital, and drug coverage. Some people choose Medicare Advantage because the drug coverage is bundled in, while others prefer Original Medicare plus a separate PDP.

Do I have to use the pharmacy my plan lists?

Yes, you must use an in-network pharmacy to get the copay price. If you use an out-of-network pharmacy, you pay the full price and the plan does not reimburse you. Some plans allow you to use mail-order pharmacies, which is often cheaper for long-term medications.

What if my doctor prescribes a drug that my PDP does not cover?

You can ask your doctor to prescribe a different drug that is on your plan's formulary, or you can request an exception from the insurance company. Some plans will cover a non-formulary drug if your doctor submits a letter explaining why that specific drug is medically necessary.

When should I review my PDP?

Review your plan every October before the Annual Enrollment Period ends on December 7. Drug prices, formularies, and premiums change yearly. A plan that was cheapest last year might be expensive this year, so comparing plans annually can save you money.