A Medicare Prescription Drug plan (PDP) is an insurance policy that covers take-home medications that a doctor has prescribed. However, out-of-pocket costs usually apply.
PDPs are also known as Medicare Part D.
Medicare-approved private insurance companies sell these plans. Most PDPs include coverage for common prescription medications.
This article takes an in-depth look at PDPs (Medicare Part D) and explores coverage options, costs, rules, and exclusions.
Glossary of Medicare terms
We may use a few terms in this piece that can be helpful to understand when selecting the best insurance plan:
- Deductible: This is an annual amount that a person must spend out of pocket within a certain time period before an insurer starts to fund their treatments.
- Coinsurance: This is a percentage of a treatment cost that a person will need to self-fund. For Medicare Part B, this comes to 20%.
- Copayment: This is a fixed dollar amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
Medicare Part D plans provide outpatient prescription drug coverage. They are available through private health insurance companies, either as part of Medicare Advantage plans or as stand-alone policies.
Each PDP must offer a standard level of coverage set by Medicare. However, the lists of covered drugs can vary by plan.
Some Medicare plans automatically provide the option of prescription drug coverage, including:
Read more about Medicare Part D.
Most Part D plans cover the costs of generic and brand-name prescription drugs.
There is a formulary, or list of medications, and each plan must cover at least two drugs in the “most commonly prescribed” category. However, the insurer can choose which.
The drugs have tier classifications, and a more expensive drug is usually in a higher tier. If a copayment applies, the overall cost may increase according to the drug’s tier.
| Drug plan tier | Definition |
|---|---|
| Tier 1 | • lowest copayment • most generic prescription drugs |
| Tier 2 | • medium copayment • preferred brand-name prescription drugs |
| Tier 3 | • higher copayment • non-preferred, brand-name prescription drugs |
| Specialty Tier | • highest copayment • very high cost prescription drugs |
If a healthcare professional feels an individual requires a drug in a higher tier instead of one in a lower tier, they can ask the PDP for an exemption. This allows the person to pay a lower coinsurance or copayment.
PDPs can change their formularies at any time. They will typically notify individuals if these changes affect any medications they are taking.
It is also important to note that the Inflation Reduction Act will create more ways for people on Medicare to save on prescription drugs. For example, insulin will cost $35 per month per covered prescription. As of 2025, the yearly cap on out-of-pocket drug costs will change to $2,000. This Act, as of 2024, has also expanded the Extra Help program to cover 150% of the federal poverty level.
Read about Medicare and generic drug tier medication.
Certain prescription drugs are excluded from PDP coverage, including:
- drugs for weight loss or gain
- over-the-counter medicines
- drugs with cosmetic uses
- fertility drugs
- drugs that treat erectile dysfunction
Prescribed vitamins and minerals are also excluded from coverage, except for prenatal or fluoride preparations.
Learn more about Medicare prescription drug coverage.
There are many PDPs, each with various benefits. A person can compare the plans available in their area with the Medicare Plan Finder.
A healthcare professional can offer guidance about specific plans and coverage and ways to save on costs.
If a prescribing doctor concludes that a plan’s formulary cannot meet a person’s health needs, it is possible to ask the insurer for an exception. In this case, the prescribing doctor needs to submit a statement to the insurer to support the request, which the insurer may deny.
When to enroll
The best time for a person to enroll in a PDP is when they first become eligible for Medicare. Any delay may result in a gap in coverage, and penalty charges may apply.
To avoid these charges, a person needs to have creditable prescription drug coverage, such as through their employer, or receive additional help with costs.
Late enrollment penalties
The late enrollment penalty is a dollar amount that plan providers add to a monthly premium. The amount may vary, depending on how long the person went without a PDP or another type of Medicare-approved prescription drug coverage.
Learn more about Medicare late enrollment penalties.
A person with a PDP needs to pay certain costs, depending on:
- the drugs involved
- the chosen plan
- whether the person visits a pharmacy in their plan’s network
- whether the necessary drugs are on the plan’s formulary
- whether the person gets support paying their PDP costs
Monthly premiums
Most plans charge a monthly premium, with costs depending on the chosen policy. In addition, the person pays the monthly premium for Medicare Part B and, if applicable, Part A.
| Individual Income | Married couple income | 2024 Monthly Payment |
|---|---|---|
| $103,000 or less | $206,000 or less | plan premium |
| $103,000+ to $129,000 | $206,000+ to $258,000 | $12.90 plus the plan premium |
| $129,000+ to $161,000 | $258,000+ to $322,000 | $33.30 plus the plan premium |
| $161,000+ to $193,000 | $322,000+ to $386,000 | $53.80 plus the plan premium |
| $193,000+ to less than $500,000 | $386,000+ to less than $750,000 | $74.20 plus the plan premium |
| $500,000 and above | $750,000 and above | $81.00 plus the plan premium |
Alternatively, a person may have a Medicare Advantage plan that includes prescription drug coverage. In this case, the cost of prescription drugs is typically included in the total policy amount because Advantage plans usually combine different Medicare parts.
Out-of-pocket costs
The deductible amount can vary between PDPs and change every year. In 2024, no Medicare drug plans can charge a deductible of more than $545.
Some plans have no deductibles, but their monthly premiums may be higher.
After a person pays their annual deductible, a copayment or coinsurance charge may apply. The same copayment amount applies to all prescription drugs on the same tier. A person may pay a lower copayment if they use a generic drug instead of the brand-name version.
Coverage gap costs
PDPs may have a coverage gap, or “donut hole,” which is a temporary limit on the plan’s coverage.
In 2024, the maximum a person and their drug plan can spend is $5,030 before reaching the coverage gap. This maximum amount can change from year to year.
However, once a person reaches $8,000 of out-of-pocket expenses on prescription drugs, they are out of this coverage gap. This puts them into catastrophic coverage and they no longer have to pay out-of-pocket costs for the rest of the year.
Medicare recipients who get additional support in paying their PDP costs do not enter coverage gaps.
Extra Help is a Medicare program that helps people with limited resources pay their Part D prescription drug costs, including premiums, deductibles, and coinsurance.
Once a person becomes eligible for Extra Help, they should pay no more than $4.50 for approved generic drugs and $11.20 for approved brand-name drugs. These prices are correct as of 2024 and may change annually.
Medicare resources
For more resources to help guide you through the complex world of medical insurance, visit our Medicare hub.
Medicare prescription drug plans (PDP) provide coverage for prescribed medication. Private insurance companies can offer them to people with Medicare parts A and B. When choosing a PDP, a person can check the plan’s formulary to make sure that it includes the necessary prescription drugs.
Costs relating to PDPs include monthly premiums, deductibles, copayments, and coinsurance charges. People with limited resources may be eligible for additional financial support from a Medicare program called Extra Help.