Precription Drug Plans (PDP / Part D)
All prescription drug coverage for Medicare beneficiaries is provided by private insurance companies, as Medicare A and B don’t cover outpatient prescriptions. Most Medicare Advantage plans include prescription drug coverage (89 percent do so in 2024). If you’re enrolled in traditional Medicare with a Medicare Supplement you have the option to enroll in a stand-alone Part D drug plan. Even if you don’t take many (or no) medications right now it’s recommended you enroll in drug plan. If you wait you may end up having to pay a higher premium due to a lifetime penalty when enrolling in Part D later.
Choosing the appropriate drug plan and annual review during the fall Annual Enrollment Period is an important part of keeping your Medicare costs under control.
When To Enroll In Medicare Part D
Part D enrollment is when you’re initially eligible for Medicare – during the seven-month period beginning three months before the month you turn 65. If you enroll prior to the month you turn 65 your prescription drug coverage will begin the first of the month you turn 65. If you enroll during the month you turn 65 or one of the three following months, your prescription coverage effective date will be the first of the following month.
Whether you’re turning 65 or are eligible for Medicare because of a disability — you have the option of selecting a Medicare Advantage plan that includes prescription drug coverage and using that in place of Medicare A, B, and D. The enrollment periods and rules are the same as those described above for stand-alone Medicare Part D plans.
In most cases, enrollment outside of your initial enrollment period is limited to an annual enrollment period between October 15 and December 7 with coverage starting January 1 of the following year. During this time, you can switch to a new PDP or Medicare Advantage plan and coverage is guaranteed issue. The new plan will automatically replace the old one so you don’t need to do anything other than enroll in the new plan.
If you are enrolled in a Medicare Advantage plan and want to switch to Original Medicare, you can do so either during the fall open enrollment period (October 15 – December 7) or during the Medicare Advantage open enrollment period (January 1 – March 31). If you do so, you’ll also have the option to purchase a Part D plan at the same time so that you’ll have prescription coverage to go along with your Original Medicare coverage.
If you didn’t enroll in a prescription drug plan (either through a PDP or a Medicare Advantage plan) during your initial open enrollment window and then you enroll during an open enrollment period in a future year, there’s a late enrollment penalty. The lifetime penalty is equal to 1% per month of the national average Part D premium for the number of months you didn’t have a drug plan. The lifetime late enrollment penalty does not apply if you delayed your Part D enrollment because you maintained creditable drug coverage from another source (like an employer-sponsored health insurance plan). NOTE: Not all employer group plans offer “creditable drug coverage”. This can also lead to a lifetime penalty. See Employer Group coverage tab.
The Part D late enrollment penalty would also apply if you drop your prescription coverage for more than 63 days and then re-enroll during the open enrollment period. It’s important to maintain continuous drug coverage from the time you’re first eligible, both to protect against significant prescription costs and also to avoid higher premium when you ultimately re-enroll.
What Will I Pay For Part D Coverage
In 2024, the national average stand-alone prescription drug plan premium is expected to be $48/month. The plans are issued by private insurers, and there’s significant variation in terms of the benefits, the formularies (covered drug lists) and the pricing. Among the 801 Part D plans that are available nationwide, average premiums range from $6/month to $11/month. NOTE: High-income enrollees pay extra for their Part D coverage. This is known as a surcharge. Please see What Does Medicare Cost link for details.
In addition to the premium, you’ll pay a copay (fixed cost) or coinsurance (a percentage of the cost of your medications) for drugs. The “donut hole” (coverage gap) in Part D plans has been steadily closing over the last few years. Enrollees with standard Part D coverage in 2024 pay 25 percent of the cost of generic and brand name drugs while in the donut hole, which is the same percentage they pay before entering the donut hole. But the donut hole is still relevant in terms of how drug costs are calculated towards reaching the catastrophic coverage threshold.
Your out-of-pocket costs will depend on the plan you choose, based on your individual medical needs. Be sure to look beyond the plan’s premium and consider all costs. You can use Medicare’s plan finder tool to help you select the best drug plan to meet your needs. This is a process that you’ll need to repeat each year during open enrollment, as drug formularies (covered drug lists) change along with premiums from one year to the next.