Medicare Part D is the part of Medicare that covers prescription drugs. It helps pay for both brand-name and generic medications you pick up at a pharmacy. Part D is optional, and it’s offered through private insurance companies approved by Medicare rather than through the federal government directly. A smaller number of drugs, mainly those given by injection or infusion at a doctor’s office, are instead covered under Part B.
How Part D Works
Part D plans are sold by private insurers, so the specific drugs covered, the costs, and the plan rules vary from one plan to another. You can get Part D coverage in two ways: as a standalone prescription drug plan that you add to Original Medicare, or as part of a Medicare Advantage plan (Part C) that bundles medical and drug coverage together. Most Medicare Advantage plans include Part D automatically.
If you choose a Medicare Advantage HMO or PPO that doesn’t include drug coverage, you cannot join a separate Part D plan on top of it. That restriction matters: if prescription drug coverage is important to you, make sure any Advantage plan you’re considering includes Part D before you enroll. Medicare Savings Account (MSA) plans and some Private Fee-for-Service (PFFS) plans are exceptions where you can add a standalone drug plan.
What Part D Plans Cover
Every Part D plan maintains a formulary, which is a list of the drugs it covers. Plans organize their formularies into tiers, and the tier a drug sits on determines what you pay. A typical structure looks like this:
- Tier 1 (lowest cost): Most generic drugs
- Tier 2 (medium cost): Preferred brand-name drugs
- Tier 3 (higher cost): Non-preferred brand-name drugs
- Specialty tier (highest cost): Very high-cost drugs, often for complex conditions
Formularies differ between plans, so a drug that’s on one plan’s preferred tier might be non-preferred or missing entirely from another plan’s list. Before you pick a plan, check that your specific medications are covered and note which tier they fall on. You can do this through the Medicare Plan Finder tool at Medicare.gov.
Drugs Covered Under Part B Instead
Not every prescription goes through Part D. Medicare Part B covers drugs that are administered by a healthcare provider in a clinical setting, such as chemotherapy infusions, injectable medications given in a rheumatologist’s or urologist’s office, and certain biologics. The key distinction is how the drug is delivered: if a doctor or nurse administers it during an outpatient visit, Part B typically picks up the cost.
Part B also covers certain drugs infused at home, as long as the drug requires a Medicare-covered infusion pump and home administration is medically appropriate. Examples include some intravenous medications for heart failure and pulmonary arterial hypertension, and certain immune globulin treatments given under the skin. If you take a specialty medication, it’s worth confirming which part of Medicare covers it, because your cost-sharing and plan requirements will differ.
The $2,000 Out-of-Pocket Cap
Starting in 2025, a hard cap limits your total out-of-pocket spending on Part D drugs to $2,000 per year. This is a major change driven by the Inflation Reduction Act. Once you hit that threshold, you move into catastrophic coverage and pay nothing for covered drugs for the rest of the calendar year.
Before this cap, Part D had a notorious “donut hole,” a coverage gap where you were responsible for a large share of drug costs after your initial coverage ran out but before catastrophic coverage kicked in. In 2024, the catastrophic phase didn’t begin until you’d accumulated $8,000 in true out-of-pocket costs. The new $2,000 cap effectively eliminates that gap. For people taking expensive medications, this can save thousands of dollars a year.
Part D coverage still moves through stages. You pay a deductible first (if your plan has one), then enter initial coverage where you typically pay 25% coinsurance on your drugs. But once your out-of-pocket spending reaches the annual cap, you’re done paying for the year.
What Part D Costs
You’ll pay a monthly premium for your Part D plan, and the amount varies by plan. Beyond the premium, your costs depend on the coverage stage you’re in and the tier of the drugs you take. During the initial coverage stage, most plans charge a copayment or 25% coinsurance per prescription. Lower-tier generics might cost you $5 to $15, while specialty-tier drugs can cost significantly more per fill until you reach the annual cap.
If you qualify for Extra Help (also called the Low-Income Subsidy), Medicare will cover most or all of your Part D costs. To be eligible, your annual income must be below $23,475 for an individual or $31,725 for a married couple living together. Your countable resources (savings, investments, real estate other than your home) must be under $18,090 for an individual or $36,100 for a couple. You apply through the Social Security Administration.
When to Enroll
Your first opportunity to enroll in Part D is your Initial Enrollment Period, which starts three months before you become eligible for Medicare Parts A and B and ends three months after. For most people, this is the seven-month window around their 65th birthday. After that, the Annual Enrollment Period runs from October 15 through December 7 each year, when you can join, switch, or drop a Part D plan.
Timing matters because of the late enrollment penalty. If you go 63 or more consecutive days without Part D or other coverage that’s at least as comprehensive (called “creditable coverage”), you’ll pay an extra 1% of the base premium for every month you were uncovered. That penalty is permanent: it gets added to your Part D premium for as long as you have the plan. Someone who goes five years without creditable coverage, for instance, would pay an extra 60% on their monthly premium indefinitely.
What Counts as Creditable Coverage
You don’t need Part D specifically if you already have drug coverage from another source that pays, on average, at least as much as a standard Part D plan. Coverage through a current or former employer, a union, TRICARE, the VA, or the Indian Health Service can all qualify. Your plan is required to send you a notice each year telling you whether your coverage is creditable.
Discount cards, free drug samples, clinic programs, and prescription discount websites do not count. If any of those are your only source of drug coverage after becoming Medicare-eligible, the penalty clock is ticking. Holding onto creditable coverage is the only way to preserve your ability to enroll in Part D later without a surcharge.