Most people age 65 and older take prescription drugs, and the full cost of medications can easily be hundreds -- or even thousands -- of dollars per year. Original Medicare, which is Parts A and B, generally doesn’t cover prescription drugs. Instead, you can buy Medicare Part D prescription drug coverage from a private insurer to help with those expenses.

Part D plans must meet some government standards, including:

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    Cover at least two drugs from certain prescription drug categories.

  • Can't have a deductible of more than $445 in 2021.

  • Must cover 95% of the cost of the medications in the plan's formulary after you pay $6,350 in out-of-pocket costs for the year.

Beyond that, each Medicare Part D plan has different premiums, co-payments and lists of covered drugs (called the "formulary"). Most states have 25 to 30 plan options. So, you may have several Part D options in your area. The best choice for you depends on the price, coverage and the drugs you take.

 

How much does Medicare Part D cost?

The average monthly premium for Part D is $30.50 in 2021.

The premiums can vary a lot by plan. For instance, in 2020, monthly premiums differed from a low of $12.18 per month for a Part D plan in California to a high of $191.40 per month for a plan in South Carolina, according to the Kaiser Family Foundation. 

And people with high incomes pay more. If your modified adjusted gross income is more than $87,000 if single (or more than $174,000 if married filing jointly), you have to pay extra. In 2020, people with higher incomes paid another $12.20 to $76.40 per month on top of the standard Part D premiums, depending on your income. 

These surcharges are generally based on your last income-tax return on file unless you've experienced certain life-changing events since then. See Medicare Premiums: Rules for Higher-Income Beneficiaries for more information.

But premiums are only part of the cost. Most plans have a deductible -- the maximum deductible is $445 in 2021, although many plans have lower deductibles. The deductible is what you spend on prescription drugs before your plan pays its portion. 

You also have to pay co-payments for your drugs. Those costs vary depending on the plan's pricing tier for your medications. Some plans with low premiums may have high co-payments for your prescriptions, which could make that plan more expensive than other options by the end of the year.

Most plans have five pricing tiers (specifics vary by plan): 

  • Preferred generics -- May have co-payments of $1 to $3 for a 30-day supply
  • Non-preferred generics -- May have co-pays of $5 to $10
  • Preferred brand-name medications -- May have a $40 co-pay
  • Non-preferred brand-name medications -- May have to pay 35% to 40% of the cost of the drug
  • Specialty medications -- May have to pay 25% to 30% of the drug costs

After you pay $6,350 out of your pocket for your medications in the year, Medicare covers 80% and the plan handles 15% of the costs. You only pay 5% of the drug costs in your plan's formulary at that time. There's no maximum cap on out-of-pocket costs.

One way to help you with Medicare costs is a Medigap policy. Medigap isn’t insurance. Instead, it helps Original Medicare beneficiaries pay their deductibles and co-payments. 

 

Alternative to Medicare Part D

You have another option than Original Medicare. Medicare Advantage is plans offered by private insurers, which combine the hospital and physician coverages found in Parts A and B. Medicare Advantage plans also often have prescription drug benefits. 

So, instead of getting Original Medicare and adding a Part D policy, you could get a Medicare Advantage plan that combines all three coverage types. 

Find out more about Medicare Advantage.

 

When can you choose Medicare Part D plans?

You can sign up for Medicare Part D at the same time you first sign up for Medicare -- within three months before and three months after the month you turn age 65. 

But you don't have to sign up then if you have other "creditable" drug coverage. For instance, you may have drug coverage through an employer or retiree plan that’s comparable or better than Medicare's. 

You have up to 63 days after losing that coverage to enroll in Part D. If you go beyond 63 days without creditable coverage:

  • You'll have to pay a late enrollment penalty when you sign up for Part D. 
  • The late penalty equals 1% of the national average Part D price for every month that you didn't have Part D. 
  • The penalty lasts for your lifetime.

You can switch Medicare Part D plans during open enrollment every fall, which runs from Oct.  15 to Dec. 7 for coverage to start Jan. 1. And you can also change plans outside of open enrollment in certain circumstances, such as if you move out of your plan's service area.

It's important to review your coverage during open enrollment. Plans can make significant changes to their costs and coverage from year to year. 

"A big issue is keeping your coverage on auto-pilot," says Cameron Giardini, co-owner of Giardini Medicare in Howell, MI, which helps people with Medicare issues and supplemental coverage. "Their plan may change the monthly premium, medication tiers, deductible -- really, the entire plan can be different from one year to the next. Just last year, one plan went from a $0 deductible to about $300.”

Your plan must send you an Annual Notice of Change in September, alerting you to changes in the plan's costs and coverage for the next year.

But even if your plan isn't making major changes, it's still a good idea to compare plans during open enrollment. Other plans may have entered the market or changed their coverage and pricing and may now be a better deal for you. And you should definitely shop around again if your medications changed over the past year. The plan with the best deal in the past may not have the best coverage for your new medications.

You can use the Medicare Plan Finder to compare all of the options in your area during open enrollment. You can also get help from your State Health Insurance Assistance Program (find contact information for your state at www.shiptacenter.org), which usually runs seminars about choosing a plan in the fall and can also provide free counseling and assistance.

 

How to pick the best Medicare Part D plan

The biggest mistake when choosing a Part D plan is to focus only on premiums. If you don't take any medications now, selecting a low-premium plan can be a good strategy. But if you take medications, see whether the drugs you take are covered on the plan's formulary and to find out how much you'd need to pay in co-payments. 

The Medicare.gov Plan Finder can help you:

  • Estimate your total out-of-pocket costs for your medications during the year
  • Provide you a break-down of how much you'd pay every month 
  • See when you'd reach the catastrophic coverage level when you only have to pay 5% of the cost of drugs covered in the plan's formulary

If you use insulin, it's particularly important to compare your plan options during open enrollment this fall. 

"Starting in 2021, the senior savings model will cap the prices for certain insulin at $35 for a 30-day supply," says Giardini. "Not all plans are participating, though, so it is important for people with insulin to check and make sure they are enrolling in a plan that is participating."

Also, find out whether the plan has any medication restrictions, including:

  • Step therapy, which only covers certain drugs if you've tried other less-expensive drugs first.
  • Prior authorization, which requires your doctor to submit documentation explaining why you need to use that specific drug.

You’ll additionally want to find out whether the plan has a preferred pharmacy. Most plans have partnered with national pharmacy chains over the past few years and offer much lower co-payments at preferred pharmacies than at other network pharmacies. 

For example, the Humana Walmart Value Rx Plan charges:

  • A $1 co-pay for a 30-day supply of preferred generics purchased at Walmart or Sam's Club, but a $10 co-pay at other retail network pharmacies.
  • 35% coinsurance for non-preferred drugs at Walmart or Sam's Club, but 50% at other pharmacies.

Some people make a mistake by automatically choosing the Part D plan offered by the same company where they have Medigap coverage, without shopping around and comparing overall costs. 

"Just because you use one company for Medigap doesn't mean they should use it for Part D," says Giardini. "This is something that seems convenient, but ends up costing people big time." 

In fact, the best Part D plan may be different for you and your spouse depending on your medications (but be careful if your plans have other preferred pharmacies).