Medicare prescription coverage: A definitive guide
In August 2022, President Biden signed the Inflation Reduction Act of 2022 into law, marking a significant change for Medicare beneficiaries. One of the Act's provisions allows Medicare to negotiate with drug companies on the price of prescription medications, a move aimed at reducing out-of-pocket costs for many individuals.
Medicare Part D, introduced in 2006, is a prescription drug plan that covers take-home prescription medications and most common outpatient prescription drugs. Medicare-approved private insurance companies administer all Part D plans, each offering a standard level of coverage and providing lists of covered medications, known as formularies.
Part D plans include both brand-name and generic prescription medications, and a formulary must consist of at least two common prescription medications from each category. However, it is essential to note that Part D does not cover all medications that a person may want or need, such as medications for weight management, over-the-counter medications, fertility medications, medications for cosmetic purposes, and medications to treat erectile dysfunction.
Out-of-pocket costs for Medicare Part D plans vary significantly based on several factors. In 2025, the average monthly premium for Part D plans is expected to be around $46.50, but this can vary widely depending on the specific plan chosen. The average annual deductible for Part D plans in 2025 is $466, with a maximum allowed deductible of $590.
Once the deductible is met, you enter the Initial Coverage Phase, where you pay 25% coinsurance for covered drugs until you reach the out-of-pocket maximum of $2,000. After this limit, you enter the Catastrophic Coverage Phase with greatly reduced or no further out-of-pocket costs.
In 2025, the annual out-of-pocket costs for individuals with Part D plans will be capped at $2,000, after which they enter catastrophic coverage and pay $0 for their prescriptions for the rest of the year. This change aims to make Part D coverage more affordable and predictable for beneficiaries.
The "donut hole," or coverage gap, has also been eliminated, simplifying the cost structure and making it more predictable. The new structure includes only three phases: Deductible, Initial Coverage, and Catastrophic Coverage.
It is essential to note that plans may include restrictions like step therapy or prior authorization, which can affect access to certain medications and increase costs if not managed properly. Insurance companies have different formularies, and each provider can decide which medications it covers, the tiers a medication falls under, and the categories that a medication belongs to.
Drug plans may change their formulary at any time, as long as they follow Medicare guidelines. Notice of changes is generally in writing and provided a minimum of 30 days before a change occurs.
Individuals can enroll in a Part D plan online, by mail, or by calling the insurance provider or Medicare directly. To be eligible for Medicare Advantage, an individual must have Medicare parts A and B. Some Medicare Advantage plans include coverage for prescription drugs automatically, while others require a person to choose it.
The Extra Help program, offered by Medicare, can help individuals with limited resources and income pay for the costs associated with Part D, including coinsurance, copayments, annual deductibles, and monthly premiums.
Late enrollment in Part D may result in a gap in coverage and a late enrollment penalty. The late enrollment penalty is calculated by taking 1% of the national base beneficiary premium and multiplying it by the number of months a person was not enrolled.
In 2026, Medicare will begin negotiations with drug companies over the prices of ten specific medications, including Eliquis, Enbrel, Xarelto, Farxiga, Jardiance, Januvia, Imbruvica, Entresto, Stelara, and Fiasp. These initial negotiations mark a significant step towards reducing prescription drug costs for Medicare beneficiaries.
[1] Centers for Medicare & Medicaid Services, "Medicare Costs at a Glance 2025," 2023. [2] Centers for Medicare & Medicaid Services, "Medicare Costs at a Glance 2025," 2023. [3] Centers for Medicare & Medicaid Services, "Medicare Part D Prescription Drug Coverage," 2023. [4] Centers for Medicare & Medicaid Services, "Medicare Part D Prescription Drug Coverage," 2023.
- The Inflation Reduction Act of 2022 allows Medicare to negotiate with drug companies on the price of prescription medications, a move aimed at reducing out-of-pocket costs for Medicare beneficiaries.
- Medicare Part D, administered by private insurance companies, covers take-home prescription medications and most common outpatient prescription drugs, but it does not cover all medications, such as those for weight management or erectile dysfunction.
- In 2025, the average monthly premium for Part D plans is expected to be around $46.50, but this can vary widely depending on the specific plan chosen.
- Once the deductible is met, you enter the Initial Coverage Phase, where you pay 25% coinsurance for covered drugs until you reach the out-of-pocket maximum of $2,000.
- In 2026, Medicare will begin negotiations with drug companies over the prices of ten specific medications, including Eliquis, Enbrel, Xarelto, Farxiga, Jardiance, Januvia, Imbruvica, Entresto, Stelara, and Fiasp.
- Individuals can enroll in a Part D plan online, by mail, or by calling the insurance provider or Medicare directly, and the Extra Help program offered by Medicare can help individuals with limited resources and income pay for the costs associated with Part D.
