Medicare Part D is a prescription drug coverage program funded by the U.S. government for Medicare beneficiaries. It is a voluntary program that helps pay for the costs of prescription drugs.
Medicare Part D plans are offered by private insurance companies approved by Medicare. These plans can vary in terms of costs, coverage, and the list of drugs they cover.
What’s the history of Medicare Part D?
The prescription drug benefit program of Medicare was a bipartisan effort signed into law by President George W. Bush on December 8, 2003, as part of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003. The program officially started on January 1, 2006.
Prior to the implementation of Medicare Part D, Medicare did not provide coverage for outpatient prescription drugs and only a Medicare Supplement plans offered limited prescription drug coverage that was not widely available.
The introduction of Part D aimed to provide all Medicare beneficiaries with access to affordable prescription drug coverage and help alleviate the financial burden of medication costs.
Since its inception, Medicare Part D has undergone changes and updates to improve its coverage and address issues such as the coverage gap (donut hole). These changes have included adjustments to the cost-sharing structure, the inclusion of more preventive services, elimination of the coverage gap in 2024, and a notably lower out-of-pocket maximum for 2025.
How does Medicare Part D work?
Medicare Part D works as a standalone prescription drug plan (PDP) if you are receiving your hospital and medical benefits from Original Medicare or as part of a Medicare Advantage plan (Part C).
- Enrollment Periods: Eligible individuals can enroll in a Medicare Part D plan during their initial enrollment period when they first become eligible for Medicare, during the annual open enrollment period (October 15 to December 7) or in some cases during a special enrollment period (SEP) like when moving to a new area.
- Beneficiaries are able choose a Medicare Part D plan that suits their needs. Plans vary in terms of monthly premiums, deductibles, and the list of drugs covered (formulary). It’s important to review the plan’s Annual Notice of Changes (ANOC) each year to discover any changes in the formulary and out-of-pocket costs.
- Once enrolled, beneficiaries typically pay a monthly premium, an annual deductible (if applicable), and a portion of the cost of their medications. After reaching a certain limit in out-of-pocket drug costs, beneficiaries enter the catastrophic coverage phase.
- Catastrophic Coverage: At this stage, the beneficiary has covered drugs fully paid by the plan for the remainder of the calendar year.
- Medicare Prescription Payment Plan: Beginning in 2025, Medicare beneficiaries will be able to spread out their out-of-pocket prescription drug costs throughout the year.
How much does a Medicare Part D plan cost?
- Monthly Premium: Part D plans typically have a monthly premium that you need to pay to maintain your coverage. Premium amounts can vary significantly depending on the plan and can range from around $0 to $100 or more in 2025. Premiums can be reduced for low-income beneficiaries or raised for higher-income beneficiaries (see IRMAA chart below).
2025 IRMAA Chart
| Single, filing individually | Married, filing jointly | Married, filing separately | What you pay each month (in 2025) |
|---|---|---|---|
| $106,000 or less | $212,000 or less | $106,000 or less | Your plan premium |
| Above $106,000 up to $133,000 | Above $212,000 up to $266,000 | Not applicable | $13.70 + your plan premium |
| Above $133,000 up to $167,000 | Above $266,000 up to $334,000 | Not applicable | $35.30 + your plan premium |
| Above $167,000 up to $200,000 | Above $334,000 up to $400,000 | Not applicable | $57.00 + your plan premium |
| Above $200,000 and less than $500,000 | Above $400,000 and less than $750,000 | Above $106,000 and less than $394,000 | $78.60 + your plan premium |
| $500,000 or above | $750,000 or above | $394,000 or above | $85.80 + your plan premium |
- Annual Deductible: Part D plans may have an annual deductible, which is the amount you pay out-of-pocket before the plan starts covering your medications. Deductibles can vary, but in 2025, they cannot exceed $590.
- Copayments or Coinsurance: Once you meet your deductible, you will typically pay a portion of the cost of each medication through either copayments (fixed amounts) or coinsurance (percentage of the medication cost). The specific amounts will depend on the plan’s formulary and drug tiers.
- Catastrophic Coverage: Once you have spent a certain amount out-of-pocket in a calendar year (maximum $2,000 in 2025), you no longer pay any additional costs.
The specifics of a Medicare Part D plan structure and costs can vary depending on the plan selected. Consult with a Medicare representative or insurance broker for additional guidance on a specific plan.
This blog is up to date as of March 2025 and has not been updated for changes in the law, administration or current events.
This information is general in nature and should not be considered financial, legal or tax advice. Consult an attorney or a tax professional regarding your specific situation.
