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What is Medicare Part D?
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Important Points
Part D is the drug coverage program for Medicare beneficiaries.
Each Part D plan has the same three stages: deductible, initial coverage & catastrophic coverage.
Carriers have different rules and requirements for certain drugs.
Medicare Part D is a federal program, but it is administered through private insurance companies that offer retail prescription drug coverage to Medicare beneficiaries. Before this program was created in 2006, many beneficiaries would spend thousands of dollars each year paying for their prescriptions out of pocket.
When the program started in 2006 it was a game changer for many Medicare beneficiaries. Beneficiaries can enroll in a stand-alone Part D drug plan that goes along with their Original Medicare benefits or they can choose a Part D plan built into a Part C Medicare Advantage plan.
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Medicare Part D and how it works
Medicare Part D is just insurance for your prescription medication needs. You pay a monthly premium to an insurance company and, in return, you use the insurance company's network of pharmacies to purchase your prescription drugs. Instead of paying full price, you will only pay a copay or percentage of the drug's cost and the insurance company will pay the rest.
Medicare Part D plans must follow federal guidelines. Each insurance company has to submit its plan outline to the Centers for Medicare and Medicaid Services each year for approval.
NOTE: Your Part D insurance card will be separate from your Medigap (Medicare Supplement) plan.
How does it work?
There are 3 stages to a Part D drug plan. They are:
1) Deductible Stage
In 2025, the Medicare Part D deductible is capped at $590. Plans can charge the full Part D deductible, a partial deductible, or no deductible at all. You will pay the network discounted price for your drugs until you have satisfied the deductible. After that, you enter the next stage.
2) Initial Coverage
During this stage, you will pay a copay or coinsurance for your drugs based on the drug formulary. Each plan separates their medications into "tiers," and each tier has a copay or coinsurance amount that you will pay. As an example, your plan might assign a $5 copay for Tier 1 generic medications, a $40 copay for Tier 3 preferred brand name drugs, and so on. The insurance company will track the spending until you have spent a total of $2,000. This is the out-of-pocket maximum amount in 2025.
3) Catastrophic Stage
Once you have spent a total of $2,000 out-of-pocket on your medications during the calendar year, you will enter the catastrophic stage. In this stage, your cost share will be eliminated and your plan will cover your medications at 100% for the remainder of the calendar year.
Part D Explained
Below we will discuss how Medicare Part D works as well as some of the major changes that took place for calendar year 2025.
Bye Bye Donut Hole
Beneficiaries that have been on Part D plans prior to 2025 may be familiar with something called the "Donut Hole." The donut hole was a stage of coverage in between the Initial Coverage Stage and the Catastrophic Stage. When a beneficiary got into the donut hole, they could no longer use the copay outlined in their plan and they had to pay 25% of the cost of the medication until they entered the catastrophic stage. This caused a lot of headaches for people who take an expensive medication.
Thanks to the Inflation Reduction Act, the donut hole disappears in 2025. Medicare has also determined that the out-of-pocket maximum for any plan in 2025 will be $2,000. Once you have fulfilled your deductible and paid $2,000 out-of-pocket, you will advance straight to the catastrophic phase of coverage where any and all of your medications will be covered 100% for the remainder of the year.
While it is still too early to determine how these changes will affect prices, the thought is that many insurance companies will increase their premiums and copays at each tier to try and fill in the gap. Because of this, Medicare has put a new option in place you can take advantage of in 2025.
For plans starting in 2025, you have the option to make a monthly payment for your out-of-pocket costs and pay nothing at the pharmacy. If you choose to take advantage of this option, the insurance company will collect information on the drugs, dosages, and frequency in which you are required to take them. From that information they should be able to determine what your estimated out-of-pocket expenses for the year would be. They will take that number, divide it by twelve, and have you pay it as a monthly payment. Just remember that this program is OPTIONAL, but if you choose to participate, you will pay nothing at the pharmacy when you pick up your medications.
Medicare Tracks Your Part D Spending
It's important to know that the Medicare program itself tracks your Part D spending each year. This protects you from paying certain costs twice. For instance, if you got a plan at the beginning of the year, paid your deductible, and then had to switch plans mid-year because you moved to a different state, your new plan will be able to see that you have already paid your deductible for the year so you won't get charged a deductible again. The costs for the initial coverage phase and the catastrophic phase work the same way.
Additionally, Part D plans change from year to year. On January 1st of each year your plan can change their benefits, pharmacy network, provider network, formulary, premiums, copayments, and coinsurance. You should receive a letter in September of each year describing these changes. If you don't like the changes and would like to shop for a new plan in the new year, you can do so during the Annual Enrollment Period that runs from October 15th - December 7th each year. All plans selected during the Annual Enrollment Period begin on January 1st.
Special Rules that affect your Part D coverage
Medicare allows insurance companies to apply certain rules for safety reasons an cost containment. The most common utilization rules that you may run into are:
QUANTITY LIMITS - A restriction on how much medication you can purchase at one time or upon each refill. If you prescriber issues more than the quantity limit, the insurance company will need him to file an exception form to explain why more is needed.
PRIOR AUTHORIZATION - A requirement that you or your doctor obtain plan approval before allowing the pharmacy to dispense your medication. The insurance company will likely ask for proof that the drug is medically necessary before they allow it. This typically affects drugs that are expensive or very potent. The doctor needs to show why this SPECIFIC medication is necessary for you and why alternative drugs might be harmful or ineffective.
STEP THERAPY - Typically the plan will require you to try less expensive alternative medications that treat the same condition before they would consider covering the prescribed drug. If the alternative medication works, both you and the insurance company save money. If it doesn't, the doctor must help you file a drug exception with your insurance company to request coverage for the original medication prescribed. They must explain why you need the more expensive drug when less expensive alternatives are available. Many times this requires them to show that you have already tried the less costly options and they were not effective.
Your overall prescription costs can be affected by these restrictions. It's important to check your medications against the plan formulary to see if restrictions apply to any of your important medications.
Restrictions apply to ALL Part D drug plans
All three of these restrictions apply throughout the formularies of every single Part D plan in the market and can be especially common with pain medications, narcotics, and opiates. If you take pain medication regularly, be prepared to deal with this extra paperwork, no matter which drug plan you choose.
Many times people think that switching form one drug plan to another will help, but it won't. Nearly all Part D plans have restrictions on pain medications. Expect to encounter this no matter which plan you choose. The best you can do is to pick a plan with the lowest overall annual anticipated spending and file the required exception forms to try and get as much approved as the plan will allow.
Additionally, some medications are not covered by Part D. If you take a prescription that is not on the formulary, like a compound medication, you would need to file an exception to try and get that drug approved. Not all exceptions are approved, so you may pay out of pocket for any medication not covered by your plan or by Part D as a whole. Please not that out-of-pocket spending due to a denied exception form will not count toward your $2,000 annual out-of-pocket maximum.
These plans are among the most confusing Medicare topics. Many people join a plan without checking to ensure that the formulary includes their medications. Sometimes they may miss that one of their medications has step therapy rules applied to it. Additionally, many people miss their initial enrollment window. Be sure to consider all these things when choosing the proper Part D plan. If you would like help, you can call us at (866) 440-1885.
Frequently Asked Questions
Who is eligible for Medicare Part D?
Any Medicare beneficiary who is enrolled in either Part A and/or Part B may enroll in a Medicare Part D plan. You must live in the plan's service area as well.
Do I have to pay for Medicare Part D?
Yes. You will pay a monthly premium to the insurance company that you choose to enroll in a Part D plan. Everyone pays for Part D unless they qualify for Medicare's Extra Help Program - Low Income Subsidy.
How much does it cost for a Medicare Part D plan?
The insurance companies set the monthly premiums for their own Part D plans and the cost can vary widely. In most areas, you can find plans starting around $15 per month.
Should I skip Part D?
We do not recommend skipping Part D coverage. There is no need to risk it when most areas have plans for as low as around $15 per month. It is important to remember that Part D plans also ensure that you have coverage for any new medications that your doctor may prescribe in the future. There are hundreds of medications that can cost hundreds or thousands of dollars each year, making them difficult to afford without coverage.
At Mohring Insurance Services LLC, we provide FREE assistance to our new Medicare clients by reviewing their Part D drug plan needs and helping them with their initial sign-up for Medicare Part D. If you have any questions, or would like a free review of your current plan, give us a call at (866) 440-1885.
Don't forget - Part D is voluntary! If you would like to enroll, you must contact an agent during a valid election period to initiate the conversation.
Key Points
Medicare Part D plans do not cover all medications available or prescribed.
Your cost-sharing with each plan can vary because all plans may cover drugs differently.
Although Part D is an optional program, if you do not enroll in a plan you will be subject to a late enrollment penalty.
At Mohring Insurance Services LLC, we are happy to offer assistance with Medicare Part D when you choose to enroll. Give us a call at (866) 440-1885, or to schedule a free consultation, click the link below:
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