A Medicare PDP is a separate prescription drug plan you choose and pay for yourself

PDP stands for Prescription Drug Plan. It is a private insurance plan that covers the cost of prescription medications. Unlike Medicare Part A (hospital) or Part B (doctor visits), a PDP is optional — you choose whether to enroll in one, and you pick which plan to join from a list of options in your area.

A PDP works alongside Original Medicare (Parts A and B). You keep your hospital and medical coverage exactly as it is, and the PDP layer sits on top to help pay for drugs. If you have Medicare Advantage (Part C), you do not need a separate PDP because most Advantage plans include drug coverage built in.

You pay a monthly premium to the PDP company, not to Medicare. The amount varies by plan and changes each year. You also pay out-of-pocket costs when you fill a prescription — a copay or coinsurance, depending on the plan and the drug.

Key Takeaways

  • A PDP is a private drug insurance plan you enroll in separately if you have Original Medicare and want prescription coverage.
  • You choose your PDP during the annual enrollment period (October 15 to December 7 each year), and coverage starts January 1.
  • Each PDP has a formulary — a list of covered drugs — and drugs are sorted into tiers that determine how much you pay out of pocket.
  • If you do not enroll in a PDP when you first become may be able to access and do not have other drug coverage, you may pay a permanent penalty when you do join later.
  • You can switch to a different PDP once a year during the enrollment period, so you can compare plans if your drugs or costs change.

How a PDP formulary and drug tiers work

Each PDP publishes a formulary — a list of prescription drugs the plan covers. Not every drug is on every formulary. If your doctor prescribes a medication that is not on your plan's formulary, you will pay the full cost out of pocket, or your doctor can ask the plan for an exception.

Drugs on the formulary are sorted into tiers, usually numbered 1 through 5. Tier 1 drugs (often generic medications) have the lowest copay. Tier 2 and 3 drugs (preferred and non-preferred brand names) cost more. Tier 4 and 5 drugs (specialty medications) have the highest copays, sometimes $100 or more per prescription. The copay you pay depends on which tier your drug is on, not on the actual price of the medication.

Before you enroll in a PDP, you should check the plan's formulary to make sure your current medications are covered and at a tier you can afford. Most plans let you view their formulary online, or you can call the plan to ask about specific drugs.

The coverage gap and how costs change through the year

Medicare PDP coverage has stages, and your out-of-pocket costs change as you spend more on drugs during the calendar year. In 2024, these stages are: initial coverage (you pay copays or coinsurance), a coverage gap (sometimes called the "donut hole," where you pay a higher percentage), and catastrophic coverage (you pay a small copay again after spending enough out of pocket).

The exact dollar amounts where these stages begin and end change each year. For example, in 2024 the coverage gap begins after you and your plan have spent $5,850 together on covered drugs. Once you reach catastrophic coverage, your costs drop again. You can find the current year's thresholds on Medicare.gov or by calling your plan.

Some people may have access to for Extra Help, a federal program that lowers PDP premiums and out-of-pocket costs if your income is low. If you think you might may have access to, you can learn more through your local Social Security office or by calling 1-800-MEDICARE.

When to enroll and what happens if you miss the important date

You can enroll in a PDP 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 enroll after December 7, your coverage starts the first day of the following month.

If you are new to Medicare, you have a 63-day window from the date your Medicare coverage starts to enroll in a PDP without penalty. This is called your Initial Enrollment Period. If you do not enroll during this window and you do not have other drug coverage (such as from an employer or union), you will owe a late enrollment penalty for as long as you have Medicare. The penalty is calculated based on how many months you went without coverage, and it is added to your monthly premium each year.

The only way to avoid the penalty is to show that you had creditable drug coverage (coverage at least as good as Medicare's) during the time you were not enrolled in a PDP. Creditable coverage can come from an employer, a retiree plan, TRICARE, the Veterans Administration, or certain other sources. If you had creditable coverage, keep that documentation.

How to compare plans and make a choice

Because PDP premiums, formularies, and copays change every year, the cheapest or best plan for you may be different from last year. Medicare offers a Plan Finder tool on Medicare.gov where you can enter your medications and see which plans cover them and what your costs would be with each plan.

To use Plan Finder, you will need a list of your current medications (including the dose and how often you take them). The tool shows you the monthly premium, the copay for each drug, and your estimated total yearly cost. You can sort plans by price or by which ones cover all your drugs.

You can also call 1-800-MEDICARE to speak with a representative who can walk you through the comparison or answer questions about specific plans. Some local senior centers and Area Agencies on Aging also offer free help comparing plans during enrollment season.

Switching plans or making changes during the year

Once you enroll in a PDP, you are locked in for the calendar year. You cannot switch to a different plan or drop your coverage until the next Annual Enrollment Period (October 15 to December 7), with one exception: if you move to a different state or county, you may be able to change plans outside the enrollment window.

If your situation changes during the year — for example, your doctor prescribes a new medication that is not on your plan's formulary, or you move — contact your plan or call 1-800-MEDICARE to find out whether you have options. Some plans allow you to request a formulary exception if a drug is not covered, or your doctor can appeal on your behalf.

When the next Annual Enrollment Period arrives, review your plan again. If your medications have changed, if your plan's formulary has changed, or if premiums have gone up, you may want to switch to a plan that fits your needs better.

PDP vs. Medicare Advantage: which includes drug coverage

If you have Original Medicare (Parts A and B), you need a separate PDP to cover prescriptions. If you have Medicare Advantage (Part C), drug coverage is usually included in your Advantage plan, and you do not need a separate PDP. In fact, you cannot enroll in both a PDP and an Advantage plan at the same time.

Some people with Advantage plans have the option to drop their Advantage coverage and switch back to Original Medicare during the Annual Enrollment Period. If they do, they would then need to enroll in a PDP to have drug coverage. This is a major decision and involves comparing the costs and coverage of both options.

Frequently Asked Questions

What if my doctor wants me to take a drug that is not on my PDP formulary?

You can ask your doctor to prescribe a different drug that is on the formulary, or your doctor can submit a formulary exception request to the plan asking them to cover the drug anyway. The plan reviews the request and decides whether to approve it. This process usually takes a few business days. In the meantime, you would pay the full cost if you fill the prescription.

Can I change my PDP in the middle of the year?

No, unless you move to a different state or county, or you experience a may have access to life event. Otherwise, you must wait for the Annual Enrollment Period (October 15 to December 7) to switch plans. If your medication or situation changes, contact your plan to see if they can make an exception or if your doctor can request coverage for a different approach.

What is the late enrollment penalty and how much is it?

If you do not enroll in a PDP when you first become may be able to access and you do not have other drug coverage, you pay a penalty added to your monthly premium for as long as you have Medicare. The penalty is roughly 1 percent of the national average PDP premium for each month you were not enrolled. The exact amount changes yearly, but it can add up to hundreds of dollars per year.

Do I have to enroll in a PDP if I do not take many medications?

No, a PDP is optional. However, if you think you might need prescriptions in the future, enrolling now protects you from the late enrollment penalty. If you truly do not take any medications and are confident you will not need prescriptions, you can skip a PDP, but you lose that protection if your health changes later.

How do I know if my current insurance counts as creditable drug coverage?

Creditable coverage means your current plan covers drugs at least as well as Medicare does. If you have coverage through an employer, a union, TRICARE, the VA, or a retiree plan, it may be creditable. Your plan administrator or HR department can tell you whether your coverage is creditable. Keep written proof in case you need it to avoid the late enrollment penalty.