Medicare Part D, Explained

medicare chart

Every day, around 10,000 Americans turn 65 and become eligible for Medicare. Many of these seniors are on multiple medications and eagerly look forward to Medicare absorbing some of their prescription drug costs. But how does Medicare prescription drug coverage work? 

Keep reading now to see Medicare Part D explained in practical, easy-to-follow terms.  

Part D: Prescription Drug Coverage

Part D is Medicare’s prescription drug coverage option. It is not mandatory but can be purchased independently or as part of a Part C Medicare Advantage Plan.

Unlike Part A, Part D is never free. The exact cost of Part D coverage varies because:

  • Coverage plans are handled at the state level and vary from state to state
  • Enrollees can select different plans with different coverage options, each at their own price points
  • Discounted coverage is available for qualifying enrollees  

Knowing what Part D covers is the first step. To explain Medicare Part D coverage fully, the next step is to look at its individual components. 

Medicare Part D Explained: Plan Components 

Like private prescription and health coverage plans, Medicare Part D involves: 

  • Formularies
  • Copays
  • Deductibles 
  • Limits

Here’s how things break down. 

  1. Medicare beneficiaries must first enroll in Parts A and B. Once they have coverage under both of those parts, they can enroll in Part D coverage.  
  2. Each Part D plan has its own formulary which specifies what it covers, what pharmacies are in-network, and its pricing tiers. All plans must meet minimum Medicare standards. 
  3. Plans may limit the amount of medication beneficiaries can receive per refill and may require medical documentation justifying more expensive drugs if less expensive alternatives are available. 
  4. Beneficiaries fill their prescriptions, pay their copays, and enjoy greatly reduced costs for their medications. 

Medicare Part D Deductible Explained

You may have heard something about plan deductibles or been warned to make someone explain the Medicare Part D coverage gap before you enroll. If so, here’s how it works. 

Once enrolled in Part D, you pay monthly premiums for your coverage. You also pay the full plan price for any medications you need up to your deductible. In 2020, the standard deductible was $435. 

When you have paid enough out of pocket to hit the deductible, your coverage kicks in. From there, you will pay a modest copay (often around $7) for each prescription you fill while the insurer pays the remainder of the cost. The insurer tracks how much you pay and how much it pays for your medications. 

When the total amount that you and your insurer together have paid reaches the “initial coverage limit” ($4,020 in 2020), you hit the “coverage gap.” At that point, your costs change.

In the gap, you pay 25 percent of your prescription costs and your insurer pays the remainder.  This continues until you have paid a total of $6,350 for your prescriptions out of pocket. 

Finally, when you have reached that second coverage limit, you go into what is called “catastrophic coverage.” From then on, your insurer will pay for 95 percent of your prescription costs and you will be responsible for the remaining five percent. 

For a more detailed explanation of the cover gap in Medicare Part D, check out the resources available from

Making Smart Choices 

Getting Medicare Part D explained before you sign up for coverage is a smart move. For other tips and tricks on how to make smart financial decisions, check out our money section today.