Understanding Medicare Part D
Medicare Part D is Medicare’s outpatient prescription drug benefit. These drug plans are offered by private insurers to Medicare members in Traditional Medicare. If you are in a Medicare Advantage plan, your drug benefit is included in that plan.
It is recommended that Medicare beneficiaries enrolling in Parts A and B also pick a Part D plan. Even if you are not currently taking any prescriptions, if you are prescribed something later in the year and have to enroll, you will pay a penalty for enrolling late.
In general, Part D plans have a monthly premium, copays for each drug, and many have out-of-pocket maximums. When choosing a Part D, it's important to check their formulary. A formulary is a list of all of the drugs they cover. If your prescriptions are not on the formulary your insurance won’t cover it. The Part D benefit structure has four stages. In each stage you will be responsible for a percentage of the drug costs up to a maximum, and then will move into the next stage. For example, in the first stage you pay 100% of drug costs until you meet the 2022 deductible of $480. After hitting the initial deductible you are only responsible for 25% of your drug costs. A more detailed sample schedule can be found below.
Medicare Part D Cost-Sharing in 2022
Part D Benefit Period
Total Amount Spent (running total)
1. Initial benefit period
100% of drug costs up to deductible
Deductible in 2022: $480
2. Initial Coverage Period (ICP)
25% of your drug costs
Up to $1.107.50 if the plan has no deductible
3. Former Coverage Gap (or Donut Hole)
25% of costs for generic and brand name drugs plus a small portion of the pharmacy processing fee (estimated to be $1 to $3)
Up to $7,050 (includes deductible and amount spent in the initial coverage period)
4. Catastrophic Benefit Period
5% coinsurance OR
$3.95 copay for generic
$9.85 copay for brand name or non-preferred
The remaining costs are based on the benefit schedule until the end of 2022
Plan will ‘reset’ and the patient will return to the initial benefit period (period 1) in 2023
Medicare Part D has a more complicated benefit structure than other parts of Medicare. If you want to read more about how Part D works, check out this article from the National Council on Aging, or visit Medicare.gov.