Introduction to Medicare Part D
Unlike other parts of Medicare, Medicare Part D drug coverage is provided by private insurance companies. The coverages are regulated by the federal government and administered by the private sector.
The plan is optional and not required to be part of Medicare, but there could be penalties if you don’t enroll when eligible.
Who is eligible for Medicare Part D?
If you are over 65, you are entitled to a Part D plan regardless of income. Unlike most health or life coverages, no physical exams are required. You can not be denied for health reasons or the number of medicines you currently take.
What do Medicare Prescription Drug Plans Cover?
Because there are multiple plans available, prescription drug coverages can vary based on the plan you purchase.
Within the Medicare drug coverage, there are multiple stages of coverage. Here is a breakdown of the coverage:
Stage 1, The Deductible period: During this stage, recipients will pay the full cost of their drugs until the entirety of their deductible is paid. Reimbursement will not begin until you pay this deductible out of pocket. You can find plans that do not have a deductible, and you would skip this stage and go directly to stage 2.
Stage 2, The Initial Coverage Period: A portion of the drug cost is covered, the remaining payment of the drug will be out of pocket. You will also pay copayments and coinsurance during this period according to their plan. This stage ends after a recipient’s total drug cost limit for the year.
Stage 3, The Coverage Gap: Once a recipient reaches their coverage limit, the Coverage Gap goes into effect. This is popularly called the “Donut Hole”.
Stage 4, Catastrophic Coverage: When your out-of-pocket costs reach $8,000 or more, you enter the fourth stage. During this period, copayments and coinsurance are significantly lowered for the rest of the year.
What Drugs are covered by Medicare Part D
The Part D drug plan covers most drugs as set by Medicare. Drugs are divided into formulary and generic drugs.
Brand Name Drugs
These are medicines branded by pharmaceutical companies, also called formulary drugs. Formularies are divided into different drug categories. A drug category is a group of medicines that treat the same symptoms.
All Part D plans are federally mandated to include at least two drugs for most categories.
Some drugs, such as those that treat weight loss or weight gain are excluded from Medicare coverage.
Generic Drugs
These drugs are the same as the formulary drugs, however, they are not marketed under the pharmaceutical brand name. They follow the same guidelines as formulary drugs but at a cheaper cost.
Four Drug Tiers
Medicare prescription drug coverage begins to distinguish itself based on drug tiers. This allows plans to keep their premiums more competitive, and each company will tier drugs differently based on how they negotiate with pharmaceutical companies.
- Tier 1 is the lowest cost to you and provides generic drugs
- Tier 2 is the preferred tier with most brand-name drugs.
- Tier 3 has a higher copayment is non-preferred and brand-name prescription drugs.
- The Speciality Tier has the highest co-payment and high-cost prescription drugs.
As you compare a drug plan, you will find that co-pays will vary based on the tiers. One company may have a $19 generic copay, while another will have a $6 copay. Each tier will be different and it pays to compare copays vs the overall monthly premium.
How does the Medicare Prescription Drug Plan work?
Each year you are able to sign up and change a drug plan during open enrollment, which is from Oct. 15 through Dec. 7.
When you turn 65, you have an initial enrollment period where you can sign up for Part D and other Medicare benefits in a 7 month window. The window begins 3 months prior to the month your turn 65 and end 3 months after.
This appointment is meant to alleviate any concerns and there is no-cost or obligation to make a change.
Should You Skip Part D?
This is the most common question we get about Part D.
In a sense, Part D is optional. But if you don’t have Part D, you must have coverage elsewhere or you will receive penalties on your premiums when you do sign up. Check out our article on Part D Penalties.
Changes to Medicare Prescription Drug Plans
The Kaiser Family Foundation and the Centers for Medicare & Medicaid Services (CMS) have tracked sweeping changes to Medicare’s Part D prescription drug program in recent years — many of them the result of the Inflation Reduction Act of 2022. Here’s what seniors enrolled in Part D need to know today.
Premiums
Average premiums for standalone Part D prescription drug plans (PDPs) are actually decreasing. [unknown medicare number: partd_avg_premium]. That said, individual plan costs vary widely — some plans charge nothing, while others can exceed $100 per month. It’s important to review your specific plan each year during Open Enrollment (October 15 – December 7).
Low-Income Subsidy (Extra Help)
Seniors with limited income and assets may qualify for the Extra Help program, which covers most Part D costs. With Extra Help, both the Part D deductible and plan premium are waived. In 2026, enrollees will pay no more than $12.65 for each brand-name drug and $5.10 for generics. Once total out-of-pocket drug costs reach $2,100, there are no further copays for the rest of the year.
Insulin Cap
Seniors with diabetes have benefited from an important protection: Part D plans are now required to cap the cost of insulin at $35/month per covered insulin product. This change took effect in 2023 under the Inflation Reduction Act and remains in place.
The Biggest Change: Out-of-Pocket Cap
The most significant recent reform to Part D is the introduction of a hard annual cap on out-of-pocket drug costs. Annual Medicare Part D cap is $2,100 in 2026 (up $100 from $2,000 in 2025). Once you hit that limit, your plan covers all additional drug costs for the rest of the year — a major financial protection for seniors on expensive medications.
What Is the “Donut Hole”?
For years, no article on Part D was complete without explaining the “donut hole” — but here’s the most important update: it no longer exists.
The Medicare Part D “donut hole” no longer exists. There is no longer a coverage gap during which Part D enrollees face higher drug costs. The donut hole was eliminated thanks to provisions of the Affordable Care Act and the Inflation Reduction Act.
Here’s a brief history for context: the donut hole was a coverage gap in which seniors who had spent a certain amount on drugs were suddenly required to pay a larger share of costs until they crossed another spending threshold. Before 2025, when a person paid up to $5,030 in combined drug costs, they reached the donut hole and had to start paying more for medications again. Once a person crossed $8,000 in out-of-pocket spending, they reached “catastrophic coverage,” at which point their plan covered full drug costs for the rest of the year.
That structure is now gone. Going forward, Part D coverage consists of just three phases: a deductible phase, an initial coverage phase, and a catastrophic phase — after which enrollees pay nothing for covered medications. The old four-phase system, including the dreaded coverage gap, has been replaced by a simpler design anchored by the $2100 out-of-pocket cap.
Best-Rated Medicare Part D Plans
The top-rated Medicare Part D plans based on industry standards are from:
- SilverScript
- Humana
- Cigna
- Mutual of Omaha
- United Healthcare
- Anthem Blue Cross and Blue Shield
How Much Does It Cost for Medicare Part D?
Premiums can vary wildly depending on your coverage, deductible and the company you choose. There is no standardized pricing for Part D.
High-income earners may have a surcharge to their normal monthly premium payment amounts.
Checklist for Picking the Best Part D plan
Choose Your Deductible Wisely
You can lower the costs of your drug plan premiums by choosing the standard deductible rather than finding a plan that covers this cost.
Examine the Copays in the Initial Coverage Phase
It’s easy to look at the bottom line premium, but you might be paying higher copays for the drugs you use. Look at how each company charges depending on the drug tier.
Look at the Co-Insurance
Once you are beyond the initial coverage phase, you begin paying a percentage of the drug costs and this can vary by plan as well. Total your annual prescription drug costs to see if you will enter this phase and how it will affect your budget.
Payment Structure
Some plans will have no upfront premiums, but there is limited drug coverage. Typically the higher the premium, the more coverage you will have as well as lower deductibles. You can balance the premium costs by finding plans with different deductible structures.
Assess Your Drug Costs
Take a look today at your average drug costs. Examining what you currently pay and what drugs you take can help an agent find the plan that fits your needs the best. Each company may charge different pricing for different drugs.
Shop Multiple Carriers
Because Part D is run through private insurers there is a wide range of differences on pricing and coverage. Gather as many quotes as possible from multiple carriers. We can do much of this work for you because we have contracted with all of the top rated Part D carriers in the US.