Original Medicare, which consists of Part A (Hospital Insurance) and Part B (Medical Insurance), provides coverage for a wide array of healthcare services. However, this government-run program generally does not cover most prescription drugs patients fill at a retail pharmacy. Original Medicare was not designed to cover self-administered drugs taken at home. The system provides limited drug coverage only under specific medical circumstances, requiring most people to seek separate coverage for ongoing prescriptions.
Prescription Drugs Covered by Original Medicare
Original Medicare covers specific medications, primarily those administered in a clinical or inpatient setting as part of a covered service.
Part A covers all medications administered during a covered inpatient hospital stay, including anesthesia and drugs required for treatment while admitted. This coverage is bundled into the overall hospital benefit. Part A also covers drugs provided during a covered stay in a skilled nursing facility or during hospice care for pain management and symptom control.
Part B covers a limited set of outpatient prescription drugs that are not typically self-administered. These are usually injectable or infused drugs that must be furnished and administered by a doctor or medical professional in a hospital outpatient setting or a clinic. Examples include certain chemotherapy and infusion drugs, injectable osteoporosis medications, immunosuppressive drugs for organ transplant recipients, specific oral anti-cancer drugs, and some anti-emetic medications when used in conjunction with covered chemotherapy.
Part B also covers certain preventive vaccinations, such as the flu shot, pneumococcal shots, and the Hepatitis B vaccine for those at medium or high risk. Additionally, drugs used with certain durable medical equipment, like nebulizer solutions, may fall under Part B.
The Role of Medicare Part D in Retail Prescription Coverage
Because Original Medicare excludes most self-administered, retail prescriptions, the government established the Medicare Part D program to provide this coverage. Part D is an optional benefit offered exclusively through private insurance companies that have contracts with Medicare. Beneficiaries can enroll in a stand-alone Prescription Drug Plan (PDP) to supplement their Original Medicare coverage.
A central concept of Part D plans is the formulary, which is the plan’s list of covered medications. Plans must cover at least two drugs in most therapeutic categories, but they organize these drugs into different cost-sharing levels known as tiers. Medications in the lowest tiers are typically preferred generics with the lowest copayments, while non-preferred brand-name and specialty drugs are placed in higher tiers with greater out-of-pocket costs.
The financial structure of Part D coverage operates through four distinct phases, which cycle annually. The first phase is the deductible, where the beneficiary pays the full cost of their prescriptions until they meet a set annual amount. Once the deductible is met, the plan enters the initial coverage phase, where the beneficiary pays a copayment or coinsurance, and the plan covers the rest of the cost.
The next phase is the coverage gap, or “donut hole,” which a person enters once the total cost of their drugs reaches a specific limit. During the gap, the beneficiary’s share of the cost for covered brand-name and generic drugs increases to 25%. The final phase is catastrophic coverage, which a person enters after their total out-of-pocket spending on covered drugs reaches an annual maximum threshold. Starting in 2024, beneficiaries in the catastrophic phase are no longer responsible for any out-of-pocket costs for covered medications for the remainder of the year.
Prescription Coverage Through Medicare Advantage
Individuals can choose to receive their Medicare benefits through a Medicare Advantage plan, also known as Part C, offered by private insurance companies. These plans must provide all the same coverage as Original Medicare Parts A and B, but they may offer different rules, costs, and networks. Most Medicare Advantage plans are structured to include prescription drug coverage, commonly referred to as Medicare Advantage Prescription Drug plans (MA-PDs).
This bundled approach means the beneficiary receives their hospital, medical, and prescription drug benefits through one private plan. The MA-PD plan must offer prescription drug coverage that is at least as good as the standard Part D benefit. These plans also use formularies and the Part D coverage phases, but their costs, specific drug lists, and pharmacy networks may differ from a stand-alone Part D plan. A person enrolled in an MA-PD plan uses the plan’s membership card for all covered health services, including filling prescriptions.