Prescription drugs may be at the top of your list of health care needs, but Original Medicare usually only covers medications given while you’re at the doctor’s office or during a hospital stay. So, the prescription drugs you take outside of those situations might not be covered. That’s where Medicare Part D comes in.

Medicare Part D helps cover the cost of your outpatient prescription drugs and is available to anyone enrolled in Medicare Parts A or B, or both. However, it’s only offered through private health insurance plans, so you’ll have to enroll in it separately.

Here’s how Medicare Part D works and what it covers, plus the benefits of enrolling as soon as you’re able.

Four phases of Medicare Part D

Medicare Part D has four coverage phases that you may move through, and you’ll pay a different amount for your prescriptions in each phase. The cost of your specific prescription drugs will determine what phases you’ll reach throughout the year. It’s important to understand each phase so you can be prepared for your costs to potentially change. If you do notice changing costs, that may indicate that you’ve moved to a different phase.

1. Deductible phase

This is the first phase. Some Medicare Part D plans may have a deductible, or a certain amount of money you’ll need to spend before the plan kicks in. That means you’ll pay 100% of your prescription costs until you reach the plan’s deductible. Keep in mind that deductibles vary from plan to plan.

2. Initial coverage phase

 If your plan has no deductible, you’ll start in the initial coverage phase. If your plan has a deductible and you’ve reached it, you’ll move into the initial coverage phase after the deductible phase.

In this phase, your Medicare Part D plan helps cover some of your prescription drug costs. You’ll typically pay a copay (a set amount of money) or coinsurance (a certain percentage of the cost for your prescription drugs) for every prescription you fill.

The initial coverage phase ends when the total amount spent by you and your plan on covered prescription drugs, including any deductible but not including your monthly premiums, reaches the initial coverage limit set by Medicare. This amount may change each year.

3. Coverage gap phase

If you reach the amount discussed above, you’ll enter the coverage gap stage, also known as the donut hole.

Most people don’t enter the coverage gap phase, but if you do, you’ll pay a certain percentage for covered brand drugs and a certain percentage for generic drugs. These discounts may change each year. Some plans offer additional coverage in the gap, so be sure to check if your plan offers it – it could save you money. It’s important to know if you have reached this stage. Keep track of your prescription spending, so you’re not surprised the next time you visit the pharmacy.

If you have a limited income and qualify for the Medicare Extra Help program (low-income subsidy), you won’t enter the coverage gap.

4. Catastrophic phase

You leave the coverage gap phase and enter the catastrophic phase if you’ve spent a certain amount of money for covered medicines. During this stage, you’ll only pay a small coinsurance or copayment for covered drugs for the rest of the year. However, starting in 2024, beneficiaries will no longer have any cost-sharing during the coverage gap phase.

Does Medicare Part D have a maximum out-of-pocket limit?

There is currently no annual maximum out-of-pocket spending limit for Part D prescription drugs. However, starting in 2025, there will be an out-of-pocket maximum and that amount could change each year.

Is Medicare Part D worth it?

Your health can be unpredictable, so while you may not need many, or any prescription drugs now, you may need them in the future. It’s better to enroll in Medicare Part D when you enroll in Original Medicare even if you don’t currently need prescription drugs. If you need to enroll in Part D later and didn’t have creditable coverage, you’ll likely have to pay a penalty. That penalty gets added to your monthly premium and continues throughout the entire time you have a Part D plan, which will end up costing you more.

What are Medicare prescription drug tiers?

Medicare plans divide all their covered prescription drugs into tiers, and each tier may cost a different amount.  Keep in mind that different plans may put the same drugs in different tiers.

If you currently take prescription drugs, take note of what you take and what their dosages are. This will help you ensure that your Part D plan covers them and that you understand what they cost. To find this information, look up your prescription drugs in the plan’s formulary and find what tier they are assigned to.

Here’s an example of a Medicare prescription drug plan’s tiers:

  • Tier 1 – Preferred generic drugs
  • Tier 2 – Generic drugs
  • Tier 3 – Preferred brand drugs
  • Tier 4 – Non-preferred drugs
  • Tier 5 – Specialty drugs

Generally, the lower tier drugs have lower costs, and the higher tier drugs have higher costs. While the lower tier drugs may be manageable to pay for without Part D coverage, the higher tiers may give you sticker shock. So, while you may have to pay a premium, deductible, copay or coinsurance, your overall Medicare Part D costs will likely be significantly less than if you don’t have coverage.

Does Medicare Part D cover insulin?

Starting in 2023, all Medicare beneficiaries with Part D will pay no more than $35 for a one-month supply of covered insulin products, regardless of the tier it’s in, even if you haven’t paid your deductible. Keep in mind that a Part D plan might not cover all available insulin products.

Does Medicare Part D cover vaccines?

Generally, Medicare Part D will cover all commercially available vaccines needed to prevent illness, but it’s always helpful to check your plan documents if you’re thinking about getting a specific vaccine. Starting in 2023, Part D will cover vaccines recommended for adults by the Centers for Disease Control and Prevention (CDC) at no cost, including the shingles vaccine.

Original Medicare only covers certain vaccines, like flu shots, pneumonia, Hepatitis B and some vaccines based on possible exposure, like rabies or tetanus. If you have Original Medicare but not Medicare Part D coverage, you may end up paying full price for other vaccines you might need or want.

How do you buy Medicare Part D plans?

You can buy Medicare Part D coverage from a private insurance company that has a contract with Medicare as soon as you’re eligible for Original Medicare during your Initial Enrollment Period (IEP). To sign up for Part D, you need to enroll in Medicare Part A, Part B or both, and live in a county where a plan is offered.

You can also switch Part D plans or enroll for the first time during the Medicare Annual Enrollment Period each year.  However, you may have to pay a late enrollment penalty if you didn’t enroll in Part D when you were first eligible and don’t have creditable coverage.

Here are the two ways to get Medicare Part D coverage:

Medical + Part D in one Medicare plan

You can get both medical and prescription drug coverage in most Medicare Advantage plans (often called Part C). These plans combine the coverage of Original Medicare Parts A and B into one plan, with the added benefit of Part D prescription drug coverage.

Standalone Medicare prescription drug plan

You can enroll in a standalone Medicare Part D plan to get coverage for your prescription drugs if:

  • You use Original Medicare for your health care needs and want prescription drug coverage.
  • You have a Medicare Supplement plan. These plans don’t include outpatient prescription drug coverage, so you’ll choose a standalone Part D plan too.
  • You have a Medicare Cost plan without outpatient prescription drug coverage.

Medicare Part D and medical plans

There are plenty of benefits to having a Medicare Part D prescription plan, and there are even more when you consider a Medicare Advantage plan with combined Part D and medical coverage.

Fewer phone calls

You’ll have one number for all your questions. Want to know how much your labs will cost and if your medicine is covered? You can call one number to get both questions answered. With two separate plans, you’d have to call one place with your medical questions and another about your medications.

One Medicare ID card

One card and one member ID number keeps things simple.

Knowing your medications

Your plan may include a medication therapy management (MTM) program, where a clinical pharmacist reviews your current medications to help you understand and manage your medications, as well as ensure they’re working as effectively as possible. The goal of an MTM program is to make sure your mix of medicines is safe, effective and a match for your life.