Medicare Part D Explained — Prescription Drug Coverage

What Is Medicare Part D?

Medicare Part D is prescription drug coverage offered through private insurance companies approved by Medicare. You can get Part D coverage as a standalone plan (if you have Original Medicare) or as part of a Medicare Advantage plan that includes drug coverage. Part D plans have a monthly premium, annual deductible, and cost-sharing for your medications.

How Part D Drug Tiers Work

Part D plans organize drugs into tiers, with lower tiers costing less and higher tiers costing more. A typical tier structure looks like this:

• Tier 1: Preferred generic drugs — lowest copay
• Tier 2: Non-preferred generic drugs
• Tier 3: Preferred brand-name drugs
• Tier 4: Non-preferred brand-name drugs
• Tier 5: Specialty drugs — highest cost-sharing

The Part D Deductible

Most Part D plans have an annual deductible — the maximum in 2024 is $545. Some plans have $0 deductibles for lower-tier drugs. After you meet your deductible, you pay copays or coinsurance for your medications until you reach the out-of-pocket threshold.

The Medicare Part D Coverage Gap (Donut Hole)

The coverage gap — historically called the 'donut hole' — has been largely eliminated. In 2024, once you and your plan have spent a combined $5,030 on covered drugs, you enter the coverage gap and pay 25% of the cost for covered drugs. Once your out-of-pocket costs reach $8,000, you enter catastrophic coverage and pay very little for the rest of the year.

The Part D Late Enrollment Penalty

If you do not enroll in Part D when first eligible and do not have other creditable prescription drug coverage, you will pay a permanent late enrollment penalty. The penalty is 1% of the national base beneficiary premium for each full month you were eligible but did not enroll. This penalty is added to your monthly premium for as long as you have Part D coverage.

How to Choose the Right Part D Plan

The best Part D plan depends on the specific drugs you take, the pharmacies you use, and your budget. AG Insurance can help you compare Part D plans side by side to find the one that covers your medications at the lowest total cost — including premium, deductible, and copays.