Demystifying Medicare Part D: 15 Key Details You Must Know

Whether you retired at the full retirement age or chose to retire early, you’re eligible to enroll in Medicare three months before your 65th birthday. 

Once you’ve enrolled, you can make changes to your health care plans for three months in the fall.

But what is Medicare Part D, and is it worth the extra cost? We answer this plus 14 other pressing questions before you make your decision.

If you weren’t taking any prescription drugs at age 65, you might not have signed up for Medicare Part D, which is Medicare’s optional insurance plan for prescription drug coverage.

Opting out of Medicare Part D might have made sense at the time: As a retiree on a fixed budget, you can keep more money in the bank by avoiding insurance you don’t need.

However, according to National Center for Health Statistics data, seven out of every 10 adults in North America between the ages of 40 and 79 take at least one prescription drug medication. 

As you age, the odds are good that you’ll need at least one prescription drug, which makes Medicare Part D a useful plan to sign up for ahead of time.

Medicare Part D helps cover the cost of the most commonly prescribed medications. The exact medications your plan covers depends on which Medicare Part D plan you sign up for. 

You’ll want to closely examine each plan’s formulary (its list of covered prescriptions) before you choose the one you want. You can select the drugs you need coverage for on the Medicare website and will be shown plans that fit your needs.

Most Medicare Part D plans charge a monthly premium on top of your current monthly Medicare Part B premium. 

According to AARP data, Medicare Part D premiums cost an average of $34.70 a month ($416.40 a year) across the United States. However, the amount you'll pay can vary depending on the plan you choose.

A deductible is the amount of money you pay out of pocket before your insurance plan kicks in. Not all Medicare Part D plans have deductibles, but if yours does, note that the federally mandated maximum deductible is $590 for the entire year.

Previously, Medicare Part D has no out-of-pocket maximum. Luckily, the Inflation Reduction Act of 2022 caps the yearly out-of-pocket costs at $2,000.

Medicare Part D plans should cover both brand-name and generic prescription drugs. However, you might pay more out of pocket for certain brand-name drugs, especially when a generic version is available.

Most Medicare Part D plans divide prescription drugs into tiers that determine how much each medication will cost with insurance. 

For instance, your Medicare Part D plan might define most generic prescriptions as tier-one drugs, which would come with a lower co-payment. Tier-two drugs could include common brand-name drugs, with slightly higher co-payments.

Again, which drugs fall under which tier is determined almost entirely by the plan provider. Carefully read through any potential plan’s list of covered medications and tier structure before signing up.

Medicare Part D plans do not cover most drugs that treat weight loss or gain, erectile dysfunction, cosmetic conditions, infertility, colds, or coughs. Over-the-counter medications are also not covered.

However, you might still get coverage for a drug that primarily treats one of the conditions listed above if you’re prescribed that medication for a different issue. 

For example, if a cancer patient is prescribed a drug that promotes weight gain, that drug might be covered by Medicare Part D.

You should consider Medicare Part D if you don’t have prescription drug coverage through another insurance provider. 

Most seniors will eventually need prescriptions, so signing up for Medicare Part D earlier in your retirement is a good investment in your future.

As long as you’re also signing up for Medicare Part A or B, you can sign up for Medicare Part D (and any other Medicare plan) starting three months before your 65th birthday.

Your initial enrollment period ends three months after your 65th birthday. If you enroll late in Medicare Part D and don’t have creditable drug coverage, you may have to pay a late enrollment penalty.

Unless you experience a life event that opens a one-off enrollment period (for instance, a move to a new state), you can only change or add coverage during the annual open enrollment period from October 15 to December 7.

Medicare Part D’s late enrollment penalty is an additional fee you’ll be charged if you don’t sign up for Medicare Part D during your initial enrollment period and decide to add it later. 

The fee also applies if you go without prescription drug coverage through another insurance plan for more than 63 days.

Unfortunately, the late enrollment penalty cannot be waived. If you incur the penalty, you’ll have to pay an extra monthly fee for the entire time you remain on your Medicare Part D plan — which usually means paying the additional monthly fee for the rest of your life.

You should always visit a pharmacy within your Medicare Part D plan’s network to minimize the amount of money you spend on prescriptions each year.

If you fill a prescription at an out-of-network pharmacy, you’ll likely pay more out of pocket than you would otherwise.

Catastrophic coverage is automatic Medicare insurance coverage that kicks in if you’ve spent more than $2,000 on medical care out of pocket this year.

With catastrophic coverage, you should make a much more affordable copayment — or co-insurance payment — on any prescriptions you pick up for the rest of the year.

Medicare Part D is worth it for most, if not all, seniors and retirees. Although the extra $30-a-month premium might require you to be a little shop smarter at the grocery store, you’ll save a staggering amount on prescriptions compared to their cost without insurance.

Even if you aren’t currently on prescription medications, it’s crucial to consider enrolling in Medicare Part D as soon as possible to avoid wasting money on expensive prescriptions.

If you didn’t sign up for it during your initial Medicare enrollment period, don’t worry. Late enrollment penalties are based on how many months you go without prescription drug coverage, so the sooner you enroll, the less you’ll be charged in late fees.