How Medicare Part D Works

Medicare Part D works by providing coverage for specific prescriptions at varying price points. Deductibles, premiums, copayments, and coinsurance fees, as well as coverage and benefits, will vary between specific insurance companies. Part D can be added or removed to your Original or Medicare Advantage plan. 

How Payments for Part D Work

Like almost all health insurance plans, you have to make premium payments for continued Part D coverage. You will also have to make small coinsurance/copayments when you receive a prescription. While this is simple, it is very important that you have this knowledgeable foundation.

What Drugs are Covered Under Part D

Because you are expected to pay certain out-of-pocket costs when you receive a prescription, it’s important that you have an idea of what these costs may look like:

  • Tier 1: $1 to $3 Coinsurance, Covers Preferred Generic Prescription Drugs
  • Tier 2: $7 to $11 Coinsurance, Covers Generic Drugs
  • Tier 3: $38 to $42 Coinsurance, Covers Preferred Brand Name Drugs
  • Tier 4: 45% to 50% Copayment, Covers Non-Preferred Drugs
  • Tier 5: 25% to 33% Copayment, Covers Specialty Drugs

Let’s start by explaining the different categories, or tiers. This drug-rating system allows for prescriptions to be sorted by price so that your insurance company knows both what you’re paying and how much they’re expected to cover as well.

As you may have noticed, the cost of the first two tiers are incredibly small—most types of drugs have options that fall within these tiers. For instance, a non-preferred drug in tier 4 may have a lower-cost alternative in tier 3, or even 1 or 2. But, if not, a good portion of the costs will still be covered by your plan.

Coverage and Benefits Will Vary, But it is Regulated

As you can also see from the tier list, there is some variation in the out-of-pocket costs for these prescriptions. While much of this can be attributed to the costs of the drugs themselves, the provider themselves can also have an impact on those costs as well as your premium and benefits.

However, because these factors are still regulated by the government, you don’t have to worry as much about being “ripped off”—with the right help, however, you can find great deals on coverage.

What Is the Medicare Donut Hole?

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When You Can (and Should) Purchase Part D

Most people enroll in Part D during their Initial Enrollment Period (IEP) which takes place during the months surrounding your 65th birthday. It is important to know, then, that Part D works within a limited eligibility—only those eligible for and enrolled in Original Medicare (Parts A and B) can then enroll in Part D.