Medicare Part D: Prescription Drug Coverage
Medicare Part D provides outpatient prescription drug coverage through private insurance companies approved by Medicare. This coverage is essential since Original Medicare (Parts A & B) does not cover most outpatient prescription medications.
Part D Overview
What is Part D?
| Feature | Description |
|---|
| Coverage | Outpatient prescription drugs |
| Administration | Private insurance companies |
| Enrollment | Voluntary (but penalties for late enrollment) |
| Formulary | Each plan has its own list of covered drugs |
| Types | Stand-alone PDP or included in MA-PD plans |
Ways to Get Part D Coverage
| Option | Description |
|---|
| Prescription Drug Plan (PDP) | Stand-alone plan added to Original Medicare |
| Medicare Advantage with Drugs (MA-PD) | Part D included in Medicare Advantage plan |
Key Point: About 96% of Medicare Advantage enrollees in 2025 are in plans that include Part D prescription drug coverage (MA-PD plans).
Major 2025 Part D Changes
Inflation Reduction Act Improvements
| Change | Details |
|---|
| $2,000 Out-of-Pocket Cap | New annual limit on prescription drug spending |
| No Coverage Gap | "Donut hole" eliminated |
| Payment Plan Option | Spread costs evenly throughout the year |
| Insulin Cap | $35/month maximum for insulin |
Before and After Comparison
| Feature | Before 2025 | 2025 and After |
|---|
| Out-of-pocket maximum | ~$8,000 | $2,000 |
| Coverage gap (donut hole) | Yes | Eliminated |
| Phases of coverage | 4 phases | 3 phases |
| Insulin cost | Variable | $35/month cap |
Key Point: The elimination of the "donut hole" and the new $2,000 out-of-pocket cap represent the most significant improvements to Part D since its creation in 2006.
2025 Part D Benefit Structure
Three-Phase Benefit Structure
| Phase | 2025 Details |
|---|
| 1. Deductible Phase | Pay 100% until $590 deductible met |
| 2. Initial Coverage Phase | Pay 25% of drug costs |
| 3. Catastrophic Coverage Phase | Pay $0 after $2,000 out-of-pocket |
Cost-Sharing in Each Phase
| Phase | Beneficiary Pays | Plan Pays | Manufacturer Pays | Medicare Pays |
|---|
| Deductible | 100% | 0% | 0% | 0% |
| Initial Coverage | 25% | 65% | 10% | 0% |
| Catastrophic | 0% | 60% | 20% | 20% |
What Counts Toward the $2,000 Cap
| Counts Toward Cap | Does NOT Count |
|---|
| Your deductible payments | Monthly premiums |
| Your copays/coinsurance | Drugs not on formulary |
| Manufacturer discounts | Drugs from non-network pharmacies |
2025 Part D Costs
Standard Part D Costs
| Cost Component | 2025 Amount |
|---|
| Maximum deductible | $590 |
| Out-of-pocket cap | $2,000 |
| National base premium | $36.78/month |
| Average premium | Varies by plan |
Part D IRMAA (Income-Related Adjustment)
| Individual Income (MAGI) | Joint Income (MAGI) | 2025 Monthly Surcharge |
|---|
| ≤$106,000 | ≤$212,000 | $0 |
| $106,001-$133,500 | $212,001-$267,000 | $13.70 |
| $133,501-$167,000 | $267,001-$334,000 | $35.30 |
| $167,001-$200,000 | $334,001-$400,000 | $57.00 |
| $200,001-$500,000 | $400,001-$750,000 | $78.60 |
| >$500,000 | >$750,000 | $85.80 |
Medicare Prescription Payment Plan
New 2025 Payment Option
| Feature | Details |
|---|
| Purpose | Spread out drug costs over the year |
| How it works | Monthly payments instead of paying at pharmacy |
| Eligibility | All Part D enrollees |
| Benefit | Avoid large upfront costs for expensive drugs |
| Enrollment | Can enroll at any time during the year |
Example of Payment Plan
| Scenario | Without Payment Plan | With Payment Plan |
|---|
| Annual drug costs | $2,000 | $2,000 |
| January payment | $2,000 at pharmacy | ~$167/month |
| Monthly after cap | $0 | ~$167/month |
| Total paid | $2,000 | $2,000 |
Formularies and Drug Tiers
Understanding Formularies
| Component | Description |
|---|
| Formulary | List of drugs covered by the plan |
| Drug tiers | Categories with different cost-sharing |
| Prior authorization | Some drugs require advance approval |
| Step therapy | May need to try lower-cost drugs first |
| Quantity limits | Maximum amounts that can be dispensed |
Typical Drug Tiers
| Tier | Description | Cost-Sharing |
|---|
| Tier 1 | Preferred generic | Lowest copay |
| Tier 2 | Non-preferred generic | Low copay |
| Tier 3 | Preferred brand | Moderate copay |
| Tier 4 | Non-preferred brand | Higher copay |
| Tier 5 | Specialty drugs | Highest cost (coinsurance) |
Part D Late Enrollment Penalty
Penalty Calculation
| Factor | Details |
|---|
| Trigger | 63+ consecutive days without creditable coverage |
| Amount | 1% of national base premium per month without coverage |
| 2025 base | $36.78/month |
| Duration | Lifetime penalty |
| Example | 24 months late = 24% penalty = $8.83/month |
Creditable Coverage
| Creditable | NOT Creditable |
|---|
| Employer/union drug plans (if comparable) | Plans with less value than Part D |
| TRICARE | No drug coverage |
| VA coverage | Over-the-counter only plans |
| Indian Health Service | |
Exam Tip: The Part D late enrollment penalty is 1% per month, compounding to significant amounts over time. Someone 5 years late would pay a 60% penalty on their premium for life.