Lesson 4: Medicare Part D

Medicare Part D is your prescription drug coverage. Part D is optional, and is available to everyone with Medicare. If you don't sign up for Part D when you're first eligible, you may be subject to a late enrollment penalty.

Medicare prescription drug coverage is available through the following plans:

1. Medicare Drug Plans: A separate drug plan that adds drug coverage to your original Medicare (A and B).
2. Medicare Advantage Plans (Part C): These are plans offered by a private Medicare agent that typically bundles your Part A, B, and drug coverage into one plan. 
3. Medicare Cost Plans: Exclusive plans only offered in limited areas of the country.
4. Medicare Private Fee-for-Service Plans (PFFS): Specialized Medicare Advantage plans offered by private carriers.
5. Medical Savings Account Plans (MSA): A pre-funded savings account you can use to pay for Medicare prescription drug coverage.

To enroll in any prescription drug plan, you must be first enrolled in Medicare Parts A and B, live in your corresponding plan's service area, and be a U.S. citizen (or lawfully present in the United States). Each plan can vary in premiums and out-of-pocket costs based on a variety of factors, including:

1. Your ZIP Code
2. RX name
3. Dosage
4. Frequency of use
5. Frequency of refill

Before enrolling in a Part D plan, make sure you consult with a licensed Medicare agent that will help you find the right plan that suits your prescription drug coverage needs.

Generally, Medicare drug plans have 3 coverage stages:

1. Deductible stage: If your Medicare plan has a deductible, you pay all out-of-pocket costs until you reach the full deductible. No Medicare drug plan may have a deductible of more than $590 in 2025. Some Medicare drug plans don’t have a deductible.
2. Initial coverage stage: After you reach your full deductible (if your plan has a deductible), you’ll pay 25% of the cost as coinsurance for your generic and brand-name drugs until your out-of-pocket spending on covered Part D drugs reaches $2,000 in 2025 (including certain payments made on your behalf, like through the Extra Help Program). 
3. Catastrophic coverage stage: Once you reach the $2,000 threshold, you’ll automatically get “catastrophic coverage" where your plan will pay for 100% of your drug costs for the rest of the calendar year.

Most people only pay a monthly Part D premium, which is determined by the specific plan you enroll in. If your 2024 individual tax return income was $103,000 or less (or $212,000 joint filing) you will only pay the base premium of your specific plan. If your income exceeds that amount, you will pay an additional amount on top of your base premium, also known as an Income Related Monthly Adjustment Amount (IRMAA).

For a complete breakdown of 2025 Medicare Part D premiums, download our informational brochure.