Medicare Part D: Prescription Drug Coverage Explained

Prescription drugs can represent one of the largest healthcare expenses in retirement — yet Medicare Part A and Part B cover almost none of them. Medicare Part D is the program that fills this gap, offering prescription drug coverage through private insurance plans approved by Medicare.

Understanding how Part D works, what it costs, and how to choose the right plan can save you hundreds or thousands of dollars annually. This guide covers everything you need to know about Medicare Part D in 2025.

What Is Medicare Part D?

Medicare Part D is the prescription drug coverage component of Medicare. It is offered through private insurance companies that have contracted with Medicare, not directly from the federal government.

Part D plans come in two forms:

1. Standalone Part D plans (PDPs): If you have Original Medicare (Parts A and B) and want drug coverage, you add a standalone Part D plan to your existing coverage.
2. Medicare Advantage with Part D (MAPD): Most Medicare Advantage plans bundle Part D drug coverage. If you have an Advantage plan that includes drug coverage, your drugs are covered through that plan — you don’t buy a separate Part D plan.

Part D is optional, but there’s a significant catch: if you go without creditable drug coverage for 63 or more consecutive days after becoming Medicare-eligible, you’ll face a permanent late-enrollment penalty when you do eventually enroll.

How Part D Works

Every Part D plan has a formulary — a list of covered drugs. Drugs on the formulary are organized into tiers, with lower tiers generally meaning lower cost-sharing for you:

• Tier 1: Preferred generic drugs (lowest cost)
• Tier 2: Non-preferred generics and some lower-cost brand-name drugs
• Tier 3: Preferred brand-name drugs
• Tier 4: Non-preferred brand-name drugs (higher cost)
• Tier 5: Specialty drugs (highest cost — often biologics and specialty medications)

Your cost for each drug depends on the tier, the plan’s deductible, and whether you’ve reached certain spending thresholds during the year.

The Part D Coverage Phases in 2025

Part D coverage works in spending stages. The rules changed significantly in 2025 due to the Inflation Reduction Act — particularly the elimination of the coverage gap (the “donut hole”) and new out-of-pocket protections.

Deductible Phase

Most Part D plans charge an annual deductible before coverage begins. In 2025, the maximum allowed deductible is $590 for standard plans. Some plans waive the deductible for certain tiers (often Tier 1 generics).

During the deductible phase, you pay 100% of drug costs until you’ve paid $590.

Initial Coverage Phase

After meeting your deductible, you pay your plan’s standard cost-sharing (copays or coinsurance) for each drug. This phase continues until your total drug costs (what you and the plan paid together) reach the initial coverage limit.

Catastrophic Coverage Phase — New in 2025

A major change effective January 1, 2025: once your out-of-pocket drug spending reaches $2,000 in a calendar year, your Part D plan covers 100% of all covered drug costs for the rest of the year. There is no further cost-sharing for the remainder of the year.

This $2,000 out-of-pocket cap is a significant improvement for people who take expensive medications. Previously, enrollees faced a “coverage gap” phase with much higher out-of-pocket costs before catastrophic coverage began.

Also new in 2025: the Medicare Prescription Payment Plan allows you to spread your Part D out-of-pocket costs over the course of the year rather than paying large amounts all at once, making drug costs more predictable month to month.

What Does Part D Cost in 2025?

Your total Part D costs include several components:

Monthly Premium

Part D premiums vary by plan and by state. Nationally, the average basic Part D plan premium in 2025 is approximately $46 per month, though individual plans range from $0 to $100+ per month.

Higher-income beneficiaries pay a Part D IRMAA surcharge in addition to their plan premium:

The IRMAA surcharge is paid directly to Medicare (added to your Part B premium bill), not to your Part D plan.

Annual Deductible

Up to $590 per year for standard plans. Many plans charge less; some waive it for certain drug tiers.

Copays and Coinsurance

After the deductible, you pay a copay or coinsurance for each prescription. Copays for Tier 1 generics are often as low as $0–$5. Brand-name drugs can have coinsurance of 25%–50%, and specialty drugs may have coinsurance that quickly reaches the out-of-pocket cap.

Out-of-Pocket Maximum

Once you’ve spent $2,000 out of pocket on covered drugs in 2025, your plan pays 100% for the rest of the year.

The Late-Enrollment Penalty

If you don’t have creditable prescription drug coverage and delay enrolling in Part D, you’ll pay a permanent penalty.

The penalty is 1% of the national base beneficiary premium ($34.70 in 2025) for each full month you were eligible but not enrolled. This is added to your monthly Part D premium for as long as you have Part D coverage.

Example: If you delay enrollment for 24 months, your penalty is 24% × $34.70 = $8.33 per month, added to every monthly premium you pay, forever.

What Counts as Creditable Coverage

Coverage is “creditable” if it’s at least as good as standard Part D coverage. Creditable coverage includes:

• Employer or union group health plan drug coverage
• TRICARE (military retiree coverage)
• VA health benefits
• Individual health insurance drug coverage
• Most COBRA coverage with drug benefits

Your insurer must notify you annually whether your coverage is creditable. Keep these notices in case you need to prove your coverage history to Medicare later.

When Can You Enroll in Part D?

Initial Enrollment Period (IEP)

Your first opportunity to enroll in Part D is the 7-month Initial Enrollment Period around your 65th birthday — the same window as Part B. Enrolling promptly avoids the late-enrollment penalty.

Annual Enrollment Period (AEP)

From October 15 to December 7 each year, you can switch Part D plans for the following year. This is the main window to review your current plan and change if a different plan covers your drugs better.

Medicare Advantage Open Enrollment Period

From January 1 to March 31 each year, Medicare Advantage enrollees can switch plans or return to Original Medicare (and then add a standalone Part D plan).

Special Enrollment Periods (SEPs)

You can enroll outside the standard windows if you experience qualifying events: losing creditable coverage, moving to a new address, or qualifying for Extra Help (the low-income subsidy program).

How to Choose a Part D Plan

With dozens of plans available in most areas, comparing options carefully is essential. The right plan depends on which drugs you take.

Step 1: List Your Medications

Before comparing plans, compile a complete list of every prescription drug you take, including the name (brand and generic), dosage, and how often you take it.

Step 2: Use Medicare’s Plan Finder

Medicare’s official Plan Finder tool (at Medicare.gov) lets you enter your ZIP code and drug list to compare all available plans based on your total annual cost — premium plus out-of-pocket drug costs combined. This total cost view is far more useful than comparing premiums alone.

Step 3: Check the Formulary

Verify that each drug you take is covered on the plan’s formulary and at what tier. If a drug is on a high tier or excluded, your annual costs could be much higher than the Plan Finder estimates, depending on whether an exception or tier exception is available.

Step 4: Consider the Pharmacy Network

Part D plans have preferred pharmacy networks. Using a preferred pharmacy often means lower copays. If you use mail-order for maintenance drugs, verify the plan’s mail-order options and pricing.

Step 5: Account for Deductibles

If you take low-cost generics, a plan with a $0 deductible for Tier 1 drugs may save you money even if its premium is slightly higher.

Extra Help: The Part D Low-Income Subsidy

If your income and assets are limited, you may qualify for Extra Help (also called the Low-Income Subsidy or LIS), a federal program that helps pay Part D premiums, deductibles, and copays.

In 2025, Extra Help is available to people with:

• Individual income below approximately $22,590 ($30,660 for couples)
• Resources below approximately $17,220 for individuals ($34,360 for couples) — excluding your home, one car, and certain other assets

Extra Help eliminates or significantly reduces the late-enrollment penalty, even if you’ve delayed enrollment. If you think you might qualify, apply through the Social Security Administration (SSA.gov) or your state Medicaid office.

Part D and Medicare Advantage

If you have Medicare Advantage rather than Original Medicare, check whether your plan includes drug coverage (most do). If it does, you receive your Part D benefits through your Advantage plan — you don’t need a separate Part D plan, and enrolling in one could actually disenroll you from your Advantage plan.

If your Medicare Advantage plan doesn’t include drug coverage, you may be able to add a standalone Part D plan, but this depends on the specific Advantage plan.

Key Takeaways

• Medicare Part D covers prescription drugs through private plans approved by Medicare
• In 2025, your out-of-pocket drug costs are capped at $2,000 per year — after that, the plan pays 100%
• The late-enrollment penalty is 1% per month of delay — permanent — so don’t skip Part D if you have no other creditable coverage
• Annual Enrollment Period (October 15–December 7) is your chance to switch plans each year — review your coverage every year, since formularies and premiums change
• Use Medicare’s Plan Finder at Medicare.gov to compare total annual costs (premium + drugs), not just premiums

For the full picture of how Part D fits with your other Medicare coverage, see our guides on Original Medicare vs. Medicare Advantage and Medigap plan comparisons.