Medicare Part D is the prescription drug coverage that comes separately from hospital and medical insurance

Medicare Part D is a prescription drug insurance plan you add to Original Medicare (Parts A and B) or that comes built into a Medicare Advantage plan. It pays for medications your doctor prescribes, whether you take them at home, in a hospital, or in a nursing facility. Part D is optional, but there is a financial penalty if you wait to sign up after you first become may be able to access.

Part D is run by private insurance companies that contract with Medicare — you do not buy it directly from the government. Each company sets its own list of covered drugs (called a formulary), its own copayments and coinsurance amounts, and its own network pharmacies. This means the cost and coverage of the same medication can differ significantly between plans, even in the same town.

You choose a Part D plan during your initial enrollment period when you turn 65, or during the annual open enrollment period from October 15 to December 7. If you miss these windows and do not have other creditable drug coverage, you will pay a late enrollment penalty for as long as you have Medicare.

Key Takeaways

  • Part D covers prescription drugs only — not medical visits, hospital stays, or equipment — and is purchased separately from hospital and medical insurance.
  • Each Part D plan has its own formulary, copayments, and pharmacy network, so comparing plans before enrollment can save hundreds of dollars per year.
  • You must sign up during your initial enrollment period at 65 or during the October 15 to December 7 annual open enrollment window to avoid a permanent penalty.
  • Part D plans have an annual deductible, coverage gap (donut hole), and catastrophic coverage phase, each with different cost-sharing amounts.

How Part D coverage phases work and what you pay at each stage

Every Part D plan has four distinct phases, and your costs change as you move through them during the calendar year. Understanding these phases helps you predict what you will owe and plan your medication refills.

The deductible phase is first. You pay the full cost of your medications until you reach your plan's annual deductible, which varies by plan but is capped at $545 for 2024. Some plans have no deductible at all. Once you hit the deductible, you move into the initial coverage phase, where you and your plan share the cost through copayments (a flat dollar amount per prescription) or coinsurance (a percentage of the drug's cost).

When your total out-of-pocket spending reaches $11,000 in 2024, you enter the coverage gap, often called the "donut hole." In this phase, you pay a larger share of the drug cost — currently 25 percent of the price for most drugs — while the plan pays less. This gap continues until your out-of-pocket costs hit $11,000. Once you reach that threshold, you move into catastrophic coverage, where the plan covers most of the cost and you pay only a small copayment or coinsurance for the rest of the year.

The exact amounts and percentages change each year. Your plan's summary document will show you the specific deductible, copayments, coinsurance rates, and coverage gap amounts for the year you are enrolled.

What medications Part D does and does not cover

Part D covers most prescription drugs, but not all. Each plan publishes a formulary — a list of covered medications — and you should check whether your current medications are on it before you sign up. Medications not on the formulary are not covered unless you request an exception from your plan.

Part D generally does not cover certain categories: over-the-counter drugs (unless prescribed by a doctor and dispensed by a pharmacist), benzodiazepines like diazepam or alprazolam, barbiturates, and some other controlled substances. It also does not cover drugs used for weight loss, erectile dysfunction, or hair loss, with limited exceptions. Vaccines are covered under Part B (medical insurance) instead of Part D.

If your doctor prescribes a drug that is not on your plan's formulary, you can ask your plan for a coverage exception. The plan will review the request and may approve it, deny it, or approve it with restrictions such as requiring you to try a similar drug first. This process usually takes a few days to a week.

The difference between Original Medicare Part D and Medicare Advantage drug coverage

If you have Original Medicare (Parts A and B), you must purchase a standalone Part D plan from a private insurer. You choose the plan yourself during enrollment, and you can switch plans every year during open enrollment.

If you have a Medicare Advantage plan (Part C), prescription drug coverage is usually included in that plan — you do not buy a separate Part D plan. Some Medicare Advantage plans are drug plans (MA-PD), meaning they bundle medical and drug coverage together. Others are medical-only plans (MA), and if you choose one of those, you must still buy a standalone Part D plan to have drug coverage.

The trade-off is flexibility. With Original Medicare and a standalone Part D plan, you can change your Part D plan every year without changing your medical insurance. With Medicare Advantage, if you want to switch drug plans, you usually have to switch your entire medical plan as well, or wait until the next open enrollment period.

How to find and compare Part D plans in your area

The official Medicare Plan Finder tool at Medicare.gov lets you enter your medications and see which Part D plans cover them, what your copayments will be, and which pharmacies are in each plan's network. You can access it year-round, but it updates with new plan information each October.

To use the tool, you will need a list of your current medications, including the dose and how often you take them. The tool shows you estimated costs for each plan based on your medications and lets you compare plans side by side. You can also call 1-800-MEDICARE to speak with someone who can help you compare plans over the phone.

Many people find that the cheapest plan in October is not the cheapest plan in January, because plans change their formularies and copayments every year. It is worth comparing plans annually, even if you have been happy with your current plan. Open enrollment runs from October 15 to December 7, and any changes you make take effect January 1.

What happens if you do not sign up for Part D when you first become may be able to access

If you do not sign up for Part D during your initial enrollment period (the three months before, the month of, and the three months after you turn 65), you will owe a late enrollment penalty. The penalty is 1 percent of the national average Part D premium for each month you were may be able to access but not enrolled, rounded to the nearest dollar.

For example, if the national average premium is $35 and you wait 12 months to sign up, your penalty would be about $4.20 per month for as long as you have Medicare. The penalty amount changes each year based on the national average premium. You cannot avoid the penalty by signing up later — it applies permanently unless you had other creditable drug coverage during the gap.

Creditable coverage means drug insurance from a former employer, a union, TRICARE, the VA, or another source that is at least as good as Medicare Part D. If you had creditable coverage, you can sign up for Part D without penalty when that coverage ends. You will need to provide proof of creditable coverage, so keep documentation from your former plan.

Common mistakes to avoid when choosing a Part D plan

The most common mistake is choosing a plan based on the lowest monthly premium without checking whether your medications are covered or what the copayments will be. A plan with a $5 monthly premium might cost you hundreds more per year if your medications have high copayments or are not covered at all.

Another mistake is assuming your plan will stay the same from year to year. Plans change their formularies, copayments, and pharmacy networks every January. A drug that was $10 per month in one year might jump to $50 in the next year, or move to a higher tier requiring higher copayments. This is why comparing plans annually is important, even if you have been satisfied with your current plan.

A third mistake is not checking whether your preferred pharmacy is in the plan's network. Some plans have limited pharmacy networks, and using an out-of-network pharmacy can cost significantly more. If you have a pharmacy you prefer, check whether it is in the network before you enroll.

Frequently Asked Questions

Can I have both Original Medicare Part D and a Medicare Advantage plan with drug coverage?

No. If you are enrolled in a Medicare Advantage plan that includes drug coverage (MA-PD), you cannot also have a standalone Part D plan. If your Medicare Advantage plan does not include drug coverage, you must buy a standalone Part D plan. You can switch between Original Medicare with Part D and Medicare Advantage with drug coverage during open enrollment, but you cannot hold both at the same time.

What if my medication is not on my Part D plan's formulary?

You can ask your plan for a coverage exception. Your doctor will need to submit a request explaining why this specific medication is medically necessary for you. The plan will review it and usually respond within a few days. If approved, the plan may cover the drug at a higher copayment or with restrictions, such as requiring you to try a similar medication first.

Do I have to use the pharmacy listed in my Part D plan?

Yes, to get the copayment price. Using an out-of-network pharmacy means you pay the full price and then submit a claim for reimbursement, which takes longer and often results in lower reimbursement. Some plans have mail-order or specialty pharmacy options as well. Check your plan's pharmacy network before enrolling if you have a preferred pharmacy.

What is the coverage gap and why does it exist?

The coverage gap, or "donut hole," is a phase where you pay a larger share of drug costs after your initial coverage ends and before catastrophic coverage begins. It exists because of how Medicare Part D was originally structured. Once you reach $11,000 in out-of-pocket spending in 2024, you enter catastrophic coverage where the plan covers most costs again.

Can I change my Part D plan if I realize I chose the wrong one?

You can change plans during the annual open enrollment period from October 15 to December 7, and the change takes effect January 1. If you experience a may have access to life event such as losing other drug coverage, moving to a new state, or a significant change in your health, you may be able to change plans outside the open enrollment window. Contact your plan or Medicare to ask about special enrollment periods.