Medicare Part D is the part of Medicare that can help you pay for prescription drug coverage. You can sign up for it if you have Part A or Part B—it does not require both.

How does Medicare Part D prescription drug coverage work?

• While Part D is technically optional, there’s a late enrollment penalty if you go without creditable prescription coverage for 63 days or more
• You can obtain Part D through a stand-alone prescription drug plan or through an all-in-one Advantage plan
• Part D involves cost-sharing, and the amount you will pay for expensive prescriptions can vary throughout the year 

Part D has four separate costs to be aware of:

• Your plan’s monthly premium
• Your plan’s annual deductible
• Per-prescription cost-sharing
• Part D IRMAA, if you’re a high earner

For 2023, the typical stand-alone Part D plan costs $10–25/month in premiums.

Alternatively, if you go the Medicare Advantage route, most plans will include Part D prescription coverage as one of the bundled additional benefits at no extra cost.

For people choosing stand-alone Part D plans, there is almost always a single-best plan that minimizes your overall costs across premiums and likely copays for your particular prescriptions. And the same is true for Medicare Advantage plans, but you’ll need to weigh drug costs against the availability of other benefits you want, as well as the particular physician networks for each option.

How do I search for my optimal Part D plan?

1. Make a list of your medications:

• What’s the exact name of the medication on your prescription bottle? Is it the generic or brand name?
• Is it a capsule, tablet or an injection?
• What form of medication do you take? If you take Metoprolol®, do you take the Succinate, Tartrate or Hydrochlorothiazide form? (Don’t worry, these names or abbreviations will be on the prescription.)
• How often do you take the medication? Once a day? Two times per week? And how often do you like to fill the prescription?
• What’s your pharmacy of choice?

Go through this process for each medication you take. You will need this list to determine which Part D plan works best for you in the following steps. 

2. Check the formulary

Medicare drug plans and Medicare Advantage plans with prescription drug coverage each maintain their own list of what drugs they cover, called a formulary.

The formulary might not include the specific medications you take. However, in most cases, a similar drug should be available. That’s because each Part D plan is required to include a minimum number of drugs in each therapeutic category.

You can ask for an exception if you or your prescriber believes none of the drugs on your plan’s formulary will work for your condition.

Also, be aware of what Part D does not cover:

• Injections or other drug treatments administered at your doctor’s office (covered under Medicare Part B)
• Compounded drugs
• Over-the-counter prescriptions, including vitamins and supplements
• Some types of pain medications and benzodiazepines
• Elective medications, like Propecia® for hair loss
• Off-label use

To decide which drug plan works for you (right now), match the medications you take with the plan’s formulary and pricing.

3. Check the tiers

Every fall, insurance carriers publish their drug list. That’s how you can determine if they cover your medication. Use this drug list to find which tier your medication falls into. Medicare Part D plans typically consist of five tiers, including:

• Tier 1 and Tier 2, which cover generic prescriptions like Atorvastatin or Lisinopril
• Tier 3 and Tier 4 for brand-name medications (higher cost)
• Tier 5 for specialty medications (highest cost)
• Tier 6 on certain types of plans for people who use insulin

You can look up which tier your medication falls into by going to medicare.gov and clicking ‘Find Plans Now.’ There, you can see all the Medicare Advantage Prescription Drug Plan and stand-alone part D plans available in your ZIP code.

But wait, we’re not done. Next you have to figure out how those payments add up.

What are the four phases of Part D?

Alas, Part D is not quite as simple as choosing your favorite soda. Part D plans have four phases of payments. When and how you pay depends on how many medications you take, with what frequency and how expensive they are.

The payment phases below are based on the total retail cost paid by you and the plan—not just the part you pay. This makes it difficult to track exactly where you are while moving through the phases. The phases determine how much you pay each year.

(1) Deductible phase. This is the amount you owe before your plan will begin to cover your medications. Many plans offer pre-deductible coverage for Tier 1 and/or Tier 2 medications.

The default deductible for Part D plans in 2023 is $505, but some plans have a lower (or zero-dollar) deductible with a higher premium.

If you take an expensive brand-name medication, like Eliquis® or Trulicity®, then you should expect your first month on the plan to cost upwards of a William McKinley ($500) because you need to meet the deductible before most plans start paying. This is part of the reason why Part D can be so frustrating—the pain is experienced up front and the cost savings only begin once you’re in the initial phase of coverage.

(2) Initial phase. Initial coverage is the stage when the plan pays part and the member pays part, usually as coinsurance or copayments. In the initial phase, your drug plan shares your costs through copays or coinsurance up to $4,660 of the total retail cost of your prescriptions.

(3) Coverage gap, also known as the donut hole, is the phase where there’s a temporary limit on what the drug plan will cover for drugs. Not everyone will enter the coverage gap. The coverage gap begins after you and your drug plan have paid $4,660 of the total retail cost of your prescriptions. In this phase, you will pay 25% of the cost of your prescriptions.

(4) Catastrophic phase. Once you have paid up to $7,400, you enter the catastrophic phase. But you might be relieved to get here, because in this phase you only pay up to 5% of the retail cost—a huge savings. You can end up here if you take very expensive medications, like Tier 5 specialty drugs.

How can I get extra help paying for prescriptions?

Each year, there’s a single Medicare Advantage or stand-alone Part D option that will provide the best cost control based on your medications and choice of pharmacy. Still, even the most cost-effective plan may be more than you’re willing to budget for prescriptions. If that describes your situation, here are four tips:

1. Speak to your doctor or pharmacist and check to see if there’s a generic or lower-cost option available.
2. Find out whether there’s a Pharmaceutical Assistance Program that can lower prescription costs for the drugs you take.
3. Check to see if your state has a State Pharmaceutical Assistance Program.
4. Finally, consider applying for a Part D subsidy called the “Extra Help Low Income Subsidy.” See the section below

What is the Part D Extra Help program?

Medicare and Social Security have a program called Extra Help—a way for people with limited income and resources to get help with prescription costs, including premiums, deductibles, and copayments.

The Extra Help program assists with Part D monthly premiums, annual deductibles and prescription copays. You must have very limited resources and income to qualify, but if you do qualify, then you could pay no more than:

• $4.15 for each covered generic drug
• $10.35 for each covered brand-name drug

SSA estimates that Extra Help is worth about $5,100 per year in savings, and the savings get even more significant if you’re on an expensive prescription. 

Future cost savings courtesy of the Inflation Reduction Act

The Inflation Reduction Act of 2022 contains significant cost control measures for Medicare Part D, but many of the changes do not take effect until at least 2024, including:

• Elimination of 5% coinsurance for Part D catastrophic coverage (starts in 2024)
• Expanded eligibility for Part D Extra Help (starts in 2024)
• A $2,000 maximum out-of-pocket cap on Medicare Part D prescription drug costs (starts in 2025)
• Allowing Medicare to negotiate on behalf of consumers with pharmaceutical  companies (begins in 2026 and the list of medications will expand through 2029)
• Limits on Part D premium increases for 2024–29

In 2023, three parts of the Act will take effect:

• Drug companies will be required to pay rebates if drug prices rise faster than Inflation
• Insulin copays will be limited to $35
• Limits on cost-sharing for adult vaccines covered under Part D, e.g. the Shingrix™ shingles vaccine

The changes will help millions of older adults save hundreds of dollars.

When is the best time to sign up for Medicare Part D?

The best time to sign up for Medicare Part D coverage is when you start Medicare. Otherwise you may face a Part D late enrollment penalty. Yes, there’s a Part D late enrollment penalty to match the Part B late enrollment penalty, but the Part D penalty is calculated a bit differently.

After your Initial Enrollment period, if there’s a period of 63 days or more in a row when you don’t have either Medicare drug coverage or private coverage, then the penalty is 1% per month for each month in which you should have had coverage.

In other words, wait a year to sign up and you’ll owe 12% more every month thereafter for the rest of your life!

For this reason, I recommend signing up for a prescription drug plan even if you do not take any medications. There is a drug plan in every zip code that costs only a couple of cups of coffee per month. It’s worth signing up on time to avoid the headache of lifetime penalties. And if you and your doctor decide to add a new prescription in midyear, then you’ll have prescription insurance and will not need to stress out over how to pay for it. 

Keep proof of creditable prescription coverage (and avoid the penalty)

If you choose to delay starting Medicare, you will need proof that you had prescription coverage at least as good as what you would have received under Medicare. Most types of employer coverage meet this standard, and your employer should send you a letter attesting to the fact that they have “creditable” coverage. Keep that letter.

Here’s why you need it: After signing up for a Part D plan, you will be required to provide a “creditable coverage attestation” to your Part D insurance carrier. If you can’t provide appropriate documentation, then you will have to pay the Part D late enrollment penalty for each month you should have had creditable prescription coverage. 

Excerpted from "It's Not That Complicated" Copyright © 2022 Memoir, Inc. dba Chapter, All rights reserved. No part of this book may be reproduced without the prior written permission of the copyright owner.