A Prescription Drug Plan (PDP) is a form of health insurance designed to help individuals manage prescription medication costs. These plans make necessary drugs more affordable by covering a portion of their price, reducing out-of-pocket expenses for beneficiaries.
The Role of Prescription Drug Plans
Prescription Drug Plans are known as Medicare Part D plans. These plans provide prescription drug coverage for individuals enrolled in Medicare, addressing the financial burden of medication costs. Part D was established as part of the Medicare Modernization Act of 2003, with coverage beginning in 2006.
This federal program operates through private insurance companies approved by Medicare. These private plans receive premiums from enrollees and the government to provide drug benefits. Unlike Medicare Parts A and B, which are government-administered, Part D is offered by these private entities, allowing for various plan options that adhere to Medicare guidelines.
Understanding How PDPs Work
A Prescription Drug Plan functions through key components that determine a beneficiary’s out-of-pocket costs: the formulary, cost-sharing, and coverage stages.
Formulary
A formulary, or drug list, is an inventory of generic and brand-name prescription drugs covered by a Medicare Part D plan. Each plan has its own formulary, covering a wide range of drugs, including at least two per category. Formularies often organize drugs into tiers, with lower tiers generally costing less.
Plans may update their formularies annually, typically on January 1, but changes can occur throughout the year, such as adding or removing drugs or moving them to different tiers. Beneficiaries should review their plan’s formulary to ensure their medications are covered and to understand their cost-sharing.
Cost-Sharing
Beneficiaries share in medication costs through deductibles, copayments, and coinsurance. A deductible is the amount paid before the plan covers costs. For 2025, the maximum deductible is $590, though some plans have lower or no deductibles.
Copayments are fixed dollar amounts paid per prescription, varying by drug tier. Coinsurance is a percentage of the prescription cost, with the plan covering the rest.
Coverage Stages
Medicare Part D plans involve different stages of coverage. For 2025, the traditional four stages have been simplified into three due to the Inflation Reduction Act: the Deductible Stage, Initial Coverage Stage, and Catastrophic Coverage Stage.
During the Deductible Stage, beneficiaries pay the full negotiated price for covered drugs until they meet their plan’s deductible. If a plan has a $0 deductible, beneficiaries move directly to the next stage. The Initial Coverage Stage begins once the deductible is met. Here, the plan pays its share, and the beneficiary pays a copayment or coinsurance. This stage continues until total out-of-pocket costs reach $2,000 in 2025.
The previous Coverage Gap, or “Donut Hole,” was eliminated as of 2025. After reaching the $2,000 out-of-pocket limit, beneficiaries enter the Catastrophic Coverage Stage. In this stage, beneficiaries pay nothing for covered medications. Costs are then covered by the Part D plan, drug manufacturers, and Medicare.
Enrolling in a Prescription Drug Plan
Eligibility for a PDP generally requires enrollment in Medicare Part A and/or Part B. There are specific periods to join or change Part D coverage.
The Initial Enrollment Period (IEP) is the first opportunity for new Medicare beneficiaries to sign up. This seven-month period typically begins three months before turning 65, includes their birth month, and extends for three months after. For those eligible due to disability, the IEP is also a seven-month period around their 25th month of disability benefits.
The Annual Enrollment Period (AEP) runs from October 15 to December 7 each year. During this time, individuals can join a new Part D plan, switch plans, or drop coverage, with changes effective January 1. Special Enrollment Periods (SEPs) allow changes outside these periods due to specific life events.
Delaying enrollment when first eligible can result in a late enrollment penalty. This penalty is added to the monthly premium if there are 63 or more days without Medicare Part D or other creditable drug coverage after initial eligibility. The penalty is 1% of the national base beneficiary premium for each full, uncovered month.
Tips for Choosing and Managing Your PDP
Choosing and managing a Prescription Drug Plan effectively impacts medication expenses. When choosing, consider individual medication needs and financial circumstances. Comparing plans based on specific drug coverage is a recommended first step.
Beneficiaries should verify their medications are on the plan’s formulary, checking for restrictions. Understanding cost-sharing for each drug, including copayments and coinsurance, is also important. The Medicare Plan Finder tool on Medicare.gov helps compare total costs for various plans. Confirming preferred pharmacies are within the plan’s network is also helpful.
For managing an existing PDP, review the plan annually during the Annual Enrollment Period to ensure it meets current needs. Opting for mail-order delivery or 90-day supplies for maintenance drugs can sometimes reduce costs. Individuals with limited income may qualify for “Extra Help,” a federal program assisting with Part D premiums, deductibles, and copayments.