As we age, staying active and independent means being able to afford the prescription medications we need to manage our health, including chronic conditions. While Medicare Parts A and B cover doctor’s visits and hospital stays, Medicare Part D (prescription drug coverage) helps older adults pay for the cost of prescription drugs.

Part D covers outpatient prescription drugs through a standalone plan that works with original Medicare (Parts A and B), or as part of the benefits provided by a Medicare Advantage (Part C) plan. 

There are a few key things you need to know about Medicare Part D to get the most out of your plan. Below, we share four important facts about Part D costs and coverage to help you make a confident, informed enrollment decision

1. Medicare Part D is not free  

While Part D provides important benefits, it’s not free for most people. Below are some of the out-of-pocket expenses you can expect to pay in 2024.

Part D cost sharing

Most people who are enrolled in a Part D plan (and not eligible for the Part D Low-Income Subsidy/LIS or "Extra Help")—are resposible for certain expenses. These may include:

• A monthly Part D plan premium (average estimated premium in 2024 is $55.50)
• An annual deductible (maximum $545 in 2024)
• A copayment or coinsurance during the initial coverage period
• A percentage of the cost of drugs (25%) once you pass the initial coverage period and enter what used to be called the coverage gap

To better understand how the Part D benefit works and how much you may have to spend, see our 2024 Part D Standard Plan Cost-Sharing Chart.

Note: Some people with higher incomes will pay more for their Part D premiums. This is called IRMAA, or income-related monthly adjustment amount. Learn more about IRMAA.

2. The Inflation Reduction Act has helped lower Medicare Part D costs—and there’s more to come

The Inflation Reduction Act of 2022 introduced many important changes for Part D enrollees. As of 2024, LIS/Extra Help further reduced out-of-pocket costs for people with incomes between 135-150% of the Federal Poverty Level (FPL). The program eliminated “partial” subsidies and replaced them with “full” subsidies. Now, enrollees no longer pay a premium if they're enrolled in a benchmark plan. They also have no deductible and fixed, lower copayments (up to $4.50 for generic and $11.20 for brand-name drugs in 2024).

In addition, the Limited Income Newly Eligible Transition (LINET) program became permanent in 2024. LINET provides immediate but temporary Part D prescription drug coverage for low-income Medicare enrollees who qualify for LIS/Extra Help but have no drug coverage. This benefit is available for up to two months until a person enrolls in a Medicare drug plan.

People who receive both Medicare and Medicaid benefits ("dual eligibles") are automatically enrolled in LINET. If you're not dual-eligible but think you may qualify for LINET, ask your pharmacist.

Other Part D changes that began in 2024 thanks to the Inflation Reduction Act include:

• Limit on insulin copays to $35
• Elimination of 5% coinsurance for Part D catastrophic coverage
• Drug companies required to pay rebates if drug prices rise faster than Inflation
• No cost-sharing for adult vaccines covered under Part D

The following changes are slated to take effect in the next few years:

• $2,000 maximum out-of-pocket cap on Medicare Part D prescription drug costs
• Medicare will be able to negotiate on behalf of consumers with pharmaceutical companies
• Limits on Part D premium increases

3. Medicare Part D has a “donut hole”

If you exceed the spending threshold in the initial coverage period of Part D, you will enter what used to be called the Part D coverage gap or "donut hole."

The coverage gap is a temporary limit on what the plan will cover for your prescription drugs. After you and your plan have spent a certain amount on covered drugs ($6,333.75 threshold in 2024), you enter the coverage gap. In this gap, you may pay a higher percentage of drug costs until you reach the out-of-pocket spending limit.

Previously, when you entered the coverage gap, you had to pay 100% of the costs of your prescription drugs. Due to the Affordable Care Act, that percentage has shrunk. While the coverage gap/donut hole has not technically "closed" fully, it's much lower than it used to be. As of 2020, Part D enrollees are responsible for paying 25% of the costs of their generic and brand-name drugs in this phase.

4. You can be penalized for enrolling late in Part D

If you delay enrollment in Medicare Part D, and you do not have other prescription drug coverage, you’ll likely have to pay high costs out of pocket. In addition, if you enroll in Part D outside your eligibility window (which is your Initial Enrollment Period), you could face a late enrollment penalty. This penalty was created to help ensure more older adults have timely access to prescription drug coverage.

How does the Part D late enrollment penalty work? It’s a monthly add-on premium calculated as 1% of the current national base beneficiary premium ($34.70 in 2024) multiplied by the number of uncovered months, rounded to the nearest 10 cents. This amount is added to the Part D monthly premium. The penalty is recalculated yearly based on that year's base premium amount.

In most cases, the Part D penalty stays in force for as long as you have drug coverage through Medicare—even if you switch Part D plans. You can avoid it by enrolling in a Part D plan within your eligibility window.

Where can I get help choosing a Medicare plan?

NCOA works with several broker partners who meet our strict Standards of Excellence. These licensed Medicare brokers will help you sort through your options and answer all your questions in clear, easy-to-understand terms. They’re dedicated to helping you make informed decisions about their Medicare coverage. Find out more today.