How does Part D work?

Whether someone has a standalone drug plan or gets Part D coverage as part of their Medicare Advantage plan, it works the same way. The drug plan has a list of covered drugs—called a formulary—that divides covered drugs into tiers. Members pay the same copayment (copay) or coinsurance for all drugs in each tier. (For example, they might pay a $3 copayment for drugs in tier 1, or a 25 percent coinsurance for drugs in tier 4).

Part D has three different stages of benefits, and drug coverage may change depending on which stage an enrollee is in:

• Initial coverage – An enrollee pays their plan’s copays or coinsurance for all covered drugs based on which tier the drug is in. They continue to pay until their total drug costs reach the initial coverage limit, which is set by the Centers for Medicare and Medicaid Services (CMS) and changes every year. Total drug costs are the combined costs paid by both the enrollee and the insurance company.
• Coverage gap (often called the “donut hole”) – Once the initial coverage limit is reached, this is the next stage. Some health plans offer prescription drug coverage during the coverage gap, but many do not, so enrollees should check their plan’s coverage details.
• Catastrophic coverage – This begins when a member’s out-of-pocket costs, including costs paid by the health plan, reach a certain amount (also set by CMS and changes every year). Once a member reaches this stage, they pay either a copay or coinsurance for their prescriptions, and the health plan pays the rest.