Medicare Part D Guide

What is Medicare Part D?

Medicare Part D provides prescription drug coverage through private insurance plans approved by Medicare. Enrollment is voluntary, but a late enrollment penalty applies if you go without creditable drug coverage for 63 or more consecutive days after becoming eligible for Medicare.

How Part D plans work

Part D plans use a formulary — a list of covered drugs organized into tiers. Tier 1 drugs (generics) have the lowest copayments; Tier 5 drugs (specialty medications) have the highest. Each plan has its own formulary, so the best plan for you depends on which drugs you take. Use the Medicare Plan Finder at medicare.gov to compare plans based on your specific medications.

The $2,000 out-of-pocket cap in 2025

Starting in 2025, Part D has a $2,000 annual out-of-pocket cap on drug costs — a landmark change. Once you reach $2,000 in out-of-pocket drug costs, you pay nothing for covered drugs for the rest of the year. This eliminates the catastrophic drug cost risk that previously existed for people on expensive specialty medications.

The late enrollment penalty

If you delay Part D enrollment without creditable drug coverage, you pay a permanent penalty of 1% of the national base beneficiary premium for each month you were without coverage. This penalty is added to your Part D premium for as long as you have Medicare. Avoid this penalty by enrolling during your Initial Enrollment Period.