Prescription Drug Plans

Medicare Part D (also called a Medicare drug plan, or Medicare Part D) is a voluntary prescription drug insurance program available to all individuals enrolled in Medicare.

What is Medicare Part D?

Medicare Part D is an insurance plan that helps bridge the gap in coverage for outpatient prescription medications that Original Medicare doesn’t typically cover. Because Medicare Part A and Part B only cover medications related to a covered service, Medicare Part D is needed to cover self-administered prescription drugs you can take at home, though in some cases it may also cover certain professionally administered medications.

Medicare Part D typically covers:

  • Prescription medications for a variety of conditions

  • Certain generic and brand-name drugs (depending on the plan’s formulary)

  • Mail-order prescriptions to potentially reduce medication costs

Medicare Part D plans do not cover over-the-counter medications, vitamins, or other non-prescription drugs.

How Does Medicare Part D Work?

Once you enroll in a Medicare Part D plan, your coverage will follow a four-stage process:

  1. Deductible: This is the initial amount you’ll pay for covered medications before your plan starts sharing the cost. While the deductible can vary from plan to plan, Medicare has capped the max deductible at $545 for any Part D drug plan.

  2. Initial Coverage: After meeting your deductible, you’ll enter the initial coverage stage where you share the cost of your medications with your plan according to a copayment or coinsurance structure. You’ll remain in this stage until your total drug costs reach $5,030.

  3. Coverage Gap (Donut Hole): Once you and your plan have reached the initial coverage limit, you’re now in the coverage gap, also known as the donut hole. During this phase, you’ll shoulder a higher percentage of the medication costs. In this phase, you’ll pay no more than 25% of the cost of brand-name and generic drugs. You’ll remain in this stage until your true out-of-pocket (TrOOP) costs reach $8,000.

  4. Catastrophic Coverage: After reaching your TrOOP costs, you’ll enter the catastrophic stage where your plan will cover the costs of your medications for the remainder of the benefits year.

Your deductible could be lower than the max $545 depending on your insurance carrier. Drug plan stages will be more affordable in 2025 because the donut hole is being eliminated and the initial coverage stage will be capped at $2,000. That means that once you hit your limit in the initial coverage stage, you’ll move to the catastrophic coverage stage meaning that you will have no out-of-pocket costs for the remainder of your benefits year.