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How does a Medicare Part D plan work?

Medicare Part D plans are like any insurance that provides lower-costing coverage for your prescription drugs.

And like any other insurance coverage, you usually pay the plan a monthly premium, you may have an initial deductible that you must pay first before your insurance coverage begins to pay a portion of your drug costs, and then as your insurance needs increase, the coverage costs (what your plan pays and what you pay) may change.

The following information describes how the basic or model 2024 Medicare Part D prescription drug plan is separated into four main parts. Depending on your prescription drug needs, you may only go into one or two parts of your Part D coverage (and if you spend over $8,000 in prescription drugs you might go into all four parts of your Part D coverage):
  • Part 1 - The Initial $545 Deductible - Some Medicare Part D prescription drug plans (PDP) and Medicare Advantage plans that provide drug coverage (MAPD) have an initial deductible that you must pay out-of-pocket before the start of your plan coverage (or before the start of your plan's cost-sharing). Many Medicare Part D plans (both PDPs and MAPDs) have a $0 deductible and provide "first dollar coverage" for your formulary prescriptions. You can see our Medicare Part D Plan Finder for examples of Medicare plans with different deductibles (just choose your state to see plans in your area). You may notice that some Medicare Part D plans have a "standard" Initial deductible, but the plans exempt low-costing drugs from the deductible, meaning your inexpensive generic drugs may be covered before you pay any of your deductible.

Important: Make sure your Medicare Part D plan covers your drugs.

In the next section, we discuss your plan's coverage of "formulary drugs". A "formulary" is a list of drugs that your Medicare Part D plan will cover. And it is important to understand that no Medicare Part D plan covers all prescription drugs.

Part D plans are only required to cover a certain number of drugs in specific drug classes. However, Medicare Part D plans can decide to cover a particular generic and exclude the corresponding brand-name drug from coverage. So the bottom line is - check your plan's formulary before enrollment to ensure that your prescriptions are covered by the plan.

  • Part 2 - The Initial Coverage Phase - Once you meet your plans Initial Deductible (if any), your drug plan then provides cost-sharing coverage for formulary drugs. Cost-sharing is where you and your Medicare Part D plan share in the retail cost of covered drugs with coinsurance (a percentage of retail, such as 25%) or copayment (such as $47 for a Tier 3 drug). Usually, the Initial Coverage Phase extends to a point where the total retail cost of the medication reaches $5,030 - however, some plans lower this limit to $2,000 or even $1,850 (lower limits are used to lower monthly premiums for people with minimal medication needs). Once you meet your plan's Initial Coverage Limit, you will exit the Initial Coverage Phase and enter the Coverage Gap. (As a note, most people never leave their Medicare drug plan's Initial Coverage Phase).

  • Part 3 - The Coverage Gap or Donut Hole - In this phase of coverage, you will receive a 75% discount on all formulary drugs (generic and brand-name drugs). Meaning that you will only pay 25% of the drug's retail cost when you reach the Donut Hole. In addition, some Medicare plans also provide partial or supplemental Gap Coverage. In such as plan, a member who purchases a brand-name medication that also has coverage in the Donut Hole will actually receive the brand-name drug manufacturer's portion of the Donut Hole Discount (70%) is also applied to the brand-name formulary drug purchase.

  • Part 4 - The Catastrophic Coverage Phase - When a person has spent more than $8,000 for prescription medications, they will be protected by Catastrophic Coverage - here plan members will not have any out-of-pocket costs for formulary drug purchases. They will remain in this coverage phase through the end of the year (December 31st).

Looking for more information about the basics of Medicare Part D coverage?

We have an extensive section of Frequently Asked Questions (FAQs) online that can help you understand the basics of Part D coverage and also let you explore some of the more advanced topics surrounding Medicare Part D and Medicare Advantage plan coverage. As a start, you can see one of our more popular questions "What is a Medicare Part D plan". In this question we discuss different ways to get your prescription coverage, the different parts of Medicare and how they fit together, and a series of specific questions that many people ask about Medicare Part D coverage.

An example of the model or standard Medicare Part D plan in action

Your out of pocket prescription drug costs are calculated on a progressive basis (like your federal income tax).

You will pay the first $545 yourself (as the Medicare Part D Plan deductible). After your deductible, you will pay 25% coinsurance towards all your prescription drug costs up to a total of $5,030.

For example, let us assume that your total yearly prescription drug expenses are $5,280.

Therefore, you will pay 25% of the difference between the deductible ($545) and ($5,030) which is: (5,030 - 545)*0.25 = $1,121.25.

When your costs total more than your $5,030 Initial Coverage Limit, you will enter the Donut Hole and receive a 75% discount on all formulary drug purchases - or, as in our case, pay 25% of the difference between $5,030 and (as in our example) $5,280 or an additional cost of $62.50.

Your total ESTIMATED annual "Out of Pocket" prescription drug cost with a Medicare Part D plan should then be around: $545 + $1,121 + $62.5 = $1,728.75
(plus your monthly premiums for the Medicare Part D plan).

Tips & Disclaimers
  • Q1Medicare®, Q1Rx®, and Q1Group® are registered Service Marks of Q1Group LLC and may not be used in any advertising, publicity, or for commercial purposes without the express authorization of Q1Group.
  • The Medicare Advantage and Medicare Part D prescription drug plan data on our site comes directly from Medicare and is subject to change.
  • Medicare has neither reviewed nor endorsed the information on our site.
  • We provide our Q1Medicare.com site for educational purposes and strive to present unbiased and accurate information. However, Q1Medicare is not intended as a substitute for your lawyer, doctor, healthcare provider, financial advisor, or pharmacist. For more information on your Medicare coverage, please be sure to seek legal, medical, pharmaceutical, or financial advice from a licensed professional or telephone Medicare at 1-800-633-4227.
  • We are an independent education, research, and technology company. We are not affiliated with any Medicare plan, plan carrier, healthcare provider, or insurance company. We are not compensated for Medicare plan enrollments. We do not sell leads or share your personal information.
  • Benefits, formulary, pharmacy network, provider network, premium and/or co-payments/co-insurance may change on January 1 of each year. Our PDPCompare.com and MACompare.com provide highlights of annual plan benefit changes.
  • The benefit information provided is a brief summary, not a complete description of benefits. For more information contact the plan.
  • Limitations, copayments, and restrictions may apply.
  • We make every effort to show all available Medicare Part D or Medicare Advantage plans in your service area. However, since our data is provided by Medicare, it is possible that this may not be a complete listing of plans available in your service area. For a complete listing please contact 1-800-MEDICARE (TTY users should call 1-877-486-2048), 24 hours a day/7 days a week or consult www.medicare.gov.
    Statement required by Medicare:
    "We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options."
  • When enrolling in a Medicare Advantage plan, you must continue to pay your Medicare Part B premium.
  • Medicare beneficiaries with higher incomes may be required to pay both a Medicare Part B and Medicare Part D Income Related Monthly Adjustment Amount (IRMAA). Read more on IRMAA.
  • Medicare Advantage plans that include prescription drug coverage (MAPDs) are considered Medicare Part D plans and members with higher incomes may be subject to the Medicare Part D Income Related Monthly Adjustment Amount (IRMAA), just as members in stand-alone Part D plans. In certain situations, you can appeal IRMAA.
  • You must be enrolled in both Medicare Part A and Part B to enroll in a Medicare Advantage plan. Members may enroll in a Medicare Advantage plan only during specific times of the year. Contact the Medicare plan for more information.
  • If you are enrolled in a Medicare plan with Part D prescription drug coverage, you may be eligible for financial Extra Help to assist with the payment of your prescription drug premiums and drug purchases. To see if you qualify for Extra Help, call: 1-800-MEDICARE (1-800-633-4227). TTY users should call 1-877-486-2048, 24 hours a day/ 7 days a week or consult www.medicare.gov; the Social Security Office at 1-800-772-1213 between 7 a.m. and 7 p.m., Monday through Friday. TTY users should call, 1-800-325-0778; or your state Medicaid Office.
  • Medicare evaluates plans based on a 5-Star rating system. Star Ratings are calculated each year and may change from one year to the next.
  • A Medicare Advantage Private Fee-for-Service plan (PFFS) is not a Medicare supplement plan. Providers who do not contract with the plan are not required to see you except in an emergency.
  • Disclaimer for Institutional Special Needs Plan (SNP): This plan is available to anyone with Medicare who meets the Skilled Nursing Facility (SNF) level of care and resides in a nursing home.
  • Disclaimer for Dual Eligible (Medicare/Medicaid) Special Needs Plan (SNP): This plan is available to anyone who has both Medical Assistance from the State and Medicare. Premiums, co-pays, co-insurance, and deductibles may vary based on the level of Extra Help you receive. Please contact the plan for further details.
  • Disclaimer for Chronic Condition Special Needs Plan (SNP): This plan is available to anyone with Medicare who has been diagnosed with the plan specific Chronic Condition.
  • Medicare MSA Plans combine a high deductible Medicare Advantage Plan and a trust or custodial savings account (as defined and/or approved by the IRS). The plan deposits money from Medicare into the account. You can use this money to pay for your health care costs, but only Medicare-covered expenses count toward your deductible. The amount deposited is usually less than your deductible amount, so you generally have to pay out-of-pocket before your coverage begins.
  • Medicare MSA Plans do not cover prescription drugs. If you join a Medicare MSA Plan, you can also join any separate (stand-alone) Medicare Part D prescription drug plan
  • There are additional restrictions to join an MSA plan, and enrollment is generally for a full calendar year unless you meet certain exceptions. Those who disenroll during the calendar year will owe a portion of the account deposit back to the plan. Contact the plan provider for additional information.
  • Medicare beneficiaries may enroll through the CMS Medicare Online Enrollment Center located at www.medicare.gov.
  • Medicare beneficiaries can file a complaint with the Centers for Medicare & Medicaid Services by calling 1-800-MEDICARE 24 hours a day/7 days or using the medicare.gov site. Beneficiaries can appoint a representative by submitting CMS Form-1696.