Medicare Part D


Part D drug coverage will be provided by a wide variety of private plans, NOT by the Medicare program itself.  This is different from the way Parts A and B work.  Also, unlike Parts A and B, people will have to take action to enroll in Part D.  They can choose a separate Prescription Drug Plan (PDP) and stay in the traditional Part A and B Medicare Program, or they can choose a Medicare Advantage plan that has a prescription drug benefit (MA-PDP).  Some types of MA plans may not offer a drug benefit.  People in these MA plans may choose a separate PDP.


The Part D benefit will cover some of the costs for certain drugs.  There will be a monthly premium for all Part D plans.  It is estimated that the average monthly premium will be $32.20 per month.  Individuals will have the option of having the premiums deducted from the Social Security check, having the premium taken directly from a bank account or paying the premium directly.  People will have to pay the first $250 each year and then Medicare will pay 75% of the next $2000 worth of drugs on the Plan's formulary. (A formulary is a list of the Plan's covered drugs.)  After that they have a gap in coverage which has become known as the "doughnut hole."  During this gap period they will have to pay all the costs of drugs until they have paid another $2850 out-of-pocket.  At that point, Medicare will begin paying about 95% of the cost of covered drugs until the end of the calendar year.  This is known as catastrophic coverage.  The total out-of-pocket cost for drugs on the plan's list of drugs will be $3600.


There will be many Part D plans.  Each plan can set and change its own formulary so long as its coverage is considered at least equivalent to the standard benefit.  In some circumstances the plans can have different co-payments for different kinds of kinds of drugs. (For example, a lower co-pay for generic drugs than for brand name drugs.)  They plans can also choose what drugs to include on the list of drugs for which they make payment.  (The list of covered drugs is called a "formulary.")

Annual Drug Costs


Medicare Pays

Your Total

Up to $250

100% of drug costs up to $250



$250 - $2,250

25% co-insurance for drug costs -
Up to $500 out-of-pocket



$2,251 - $5,100

100% for drugs $2,251 - $5,100
(could equal as much as $2,850)



Over $5,100

$2 for generic drugs and
$5 for brand-name drugs,
or 5% co-insurance for any drug
(whichever is greater)


$3,600 plus
price per drug cost

Numbers in the above chart are rounded to the nearest dollar
and do NOT include the monthly premiums for Part D.

NOTE: You may only see a plan exactly like the one outlined above if no private company is offering a drug plan in your area and you get coverage directly through the government.  Private companies can create their own set of criteria for coverage as long as the overall package is at least as good as the one outlined above.  However, you must spend $3,600 out-of-pocket (not including Part D premiums) for covered drugs before your out-of-pocket costs are reduced substantially. (catastrophic coverage).  Catastrophic coverage - when your out-of-pocket costs excluding premiums reach $3,600; Medicare will then begin paying again.  The amount that Medicare will pay after this time is 95% of the drug costs.  You will be responsible for either a $2 co-pay for general drugs and $5 co-pay for brand-name drugs, or 5% of the drug costs, whichever is higher.


  • The amount of the monthly premium.

  • Whether the plan formulary includes:

  • The particular drugs needed by the Medicare beneficiary

  • The strengths and dosages of the drugs needed by the beneficiary

  • The number of days covered in each prescription (Example: 30, 60 or 90 days)

  • Whether the pharmacies in the plan's network include:

  • The pharmacies used by the beneficiary

  • The pharmacy used by the long-term care facility in which the beneficiary resides

  • Whether there are price differences among pharmacies in the network.

  • Whether mail-order is allowed or required:

  • The price differential for mail order

  • The number of days covered in each prescription
    (Example: 30, 60 or 90 days)

  • The plan's utilization management tools:

  • The prior authorization requirements

  • Whether the plan requires step therapy (Requirement that certain medications be tried before that prescribed by the beneficiary's physician)

  • Whether the plan uses tiered cost sharing (Different co-pays for generic brands or for specific drugs)

  • The number of tiers

  • The co-payments / co-insurance per tier

  • Whether the plan offers therapeutic substitutions

  • Whether there are quantity limitations:

  • On the number of prescriptions in a month

  • On the number of pills in a prescription

  • Whether the plan offers supplemental benefits

  • How the plan coordinates with the State Pharmaceutical Assistance Program, if applicable.

  • Who is the plan sponsor, has the entity been in the community for a while and are they reliable?

  • The "Transition" process used by the PDP (Temporary use of a drug not covered by the plan)

  • The "Exceptions" process used by the PDP (Appeal if beneficiary's drug is not covered by the plan)

  • Whether the individual has other insurance that covers prescription drugs:

  • Through a Medicare HMO or other Medicare Advantage plan.  If so, the individual must keep getting drug coverage through that plan if they wish to stay in that plan.

  • Through a retiree health plan.  If so, has the former employer told the individual whether the insurance is as good as or better than Medicare's coverage (i.e., "creditable" coverage)?  If it is creditable coverage, the individual may stay in that plan without getting a late penalty on the premium if they later decide to change to a Medicare drug plan.

  • Through a Medigap (Medicare Supplement) policy?  If so, has the insurer told the individual whether the insurance is creditable coverage?  If it is not, the individual will have to pay a late penalty on the premium if she keeps her Medigap drug coverage and later switches to a Medicare Prescription Drug Plan.

  • Individuals with coverage through the Veteran's Administration, TRICARE, Federal Health Employee Benefit Plan, Railroad Retirement Board, Program All-Inclusive Care for the Elderly (PACE) or Indian Health Service, may continue receiving prescription drug coverage through those plans if that coverage is as good as what is offered from Medicare prescription drug coverage.

Copyright 1998-2015  McClaren & Associates.  All Rights Reserved.
Last modified: February 06, 2015