Medicare Part D plans are usually called "prescription drug plans." Like Medicare Advantage, these plans are also purchased through private insurance companies. Because Medicare Parts A and B and Medicare supplement plans do not cover prescription drugs, most people also enroll in a Part D plan when they become eligible for Medicare. A Medicare prescription drug plan works like many other insurance plans. Typically, you pay a portion of your prescription drug costs and the health insurance plan pays the rest.
You can purchase a Part D plan regardless of any health conditions you may have. Even if you only have Original Medicare Parts A or B, you still can enroll in a prescription drug plan. Each prescription drug plan features a formulary, or drug list, of covered drugs that range from generic to specialty drugs.
With all prescription drug plans, you'll pay a portion of the cost of the drugs you take. The amount you'll pay depends on how much money you've already spent on prescription drugs for the year. Coverage is provided in three levels:
In Level 1, some prescription drug plans require that you meet a deductible before the plan begins to pay benefits. Once the deductible is met, you will pay a portion of the cost of the prescription drug either as a copayment or coinsurance. You continue to share the cost of your prescriptions by paying copayments or coinsurance until your total cost reaches a certain dollar limit. This is called the "initial coverage limit." In 2017, this limit was $3,700.
When you've reached the initial coverage limit, your coverage moves to Level 2, which is commonly called the "coverage gap" or "donut hole." While some plans do cover the cost of generic drugs while you're in Level 2, you are required to pay a larger portion of your prescription drug costs until you reach the Level 2 limit. In 2017, the Level 2 limit was $4,950.
Level 3 is called "catastrophic coverage." Here, your out-of-pocket costs are minimal. In Level 3, you'll pay predictable copayments or coinsurance for your prescription medications and the plan will pay the balance.
The best time to buy prescription drug coverage is when you first become eligible for Medicare. If you wait, you may have to pay a penalty and you may not be able to have coverage when you need it. Like Medicare Advantage, you may enroll in a prescription drug plan during your Initial Enrollment Period, during a Special Election Period or during the Annual Election Period.