In 2006, Medicare began covering some prescription drugs taken at home by introducing Medicare Part D drug plans, which are actually operated by private insurance companies with oversight by Medicare. The program has proven to be quite popular and beneficial to millions of Americans, as about 90 percent of Medicare’s nearly 45 million beneficiaries have some type of drug coverage. All told, Medicare Part D covers an estimated 25.4 million beneficiaries through a combination of stand-alone prescription drug plans and Medicare Advantage plans that include drug coverage.

Like its A, B and C counterparts, Medicare Part D can seem like an overwhelming and complicated landscape for those who are unfamiliar with how it works, what it covers, and what might be excluded. If you’re considering enrolling yourself or a loved one in order to help pay for regular prescription drugs, here are the basics you need to know about Medicare Part D plans.

Medicare Part D Explained

The eligibility for Medicare Part D is rather broad, and anyone who is entitled to Medicare Part A or enrolled in Medicare Part B can join a Medicare Part D prescription drug plan. This can be a stand-alone plan that complements Medicare Part A and Part B coverage, or it can be part of a Part C Medicare Advantage managed care plan that rolls together hospital, medical, and prescription drug insurance. And if you receive Medicaid (Medi-Cal in California) benefits, you’re automatically enrolled in a low-cost Part D plan.

When considering enrollment, it’s important to note that if you don’t enroll when first eligible for Medicare (usually at age 65) but later decide to join a plan, you will pay a penalty of 1 percent per month on the premiums for every month you’ve delayed. This higher premium cost applies to any plan you enroll in, and it’s permanent.

Who Runs the Part D Drug Plans?

The federal government’s Medicare program sets the basic rules for Part D prescription drug plans, but private insurance companies issue the individual plans themselves. Different plans are offered in every state. Some are called stand-alone plans, meaning they cover prescription drugs only and complement separate coverage under Part A for hospital insurance and Part B for medical insurance. People who opt for a Part C Medicare Advantage managed care plan can get Part D drug coverage through that plan instead.

The specific terms of payment and coverage are set by the company issuing the Part D plan, subject only to Medicare’s general rules. If someone wants to enroll in a plan, he does so directly with the insurance company that offers it, whether it is a stand-alone Part D plan or part of a Part C managed care plan.

How Much Will It Cost and What Drugs Does It Cover?

Monthly premiums for stand-alone Part D plans, and for Part C Medicare Advantage managed care plans that include drug coverage, run from about $15 to $75 per month, depending on which plan someone chooses and where he or she lives. The average cost of a plan is about $34 per month. No plan covers every prescription drug, or even comes close. What’s more, some drugs, by law, are not covered at all, including certain sedatives, tranquilizers, sleeping pills, drugs used for weight loss or gain, and over-the-counter medications.

Medicare only requires each plan to cover two drugs—either brand name or generic—in each “therapeutic class” of medications. That means that for any disease or condition, a plan covers some but not all drugs.

The specific drugs a plan does cover are included in a list called a formulary. A plan pays its share only of the drugs listed on its formulary and purchased from a pharmacy—either a store or a mail-order service—that participates in that plan.

Unfortunately, each plan changes the drugs it includes in its formulary every year. The fact that a plan now covers all of someone’s drugs doesn’t mean that it will next year, which means you need to review your plan annually. Each autumn, when all plans announce changes in their formularies for the following year, it is smart to look at the new options for cost and coverage.

Are There Restrictions on Coverage Other Than the Formulary List?

Knowing that the drugs someone takes are included in a plan’s formulary list doesn’t tell you everything about coverage. Plans can place other restrictions on drug availability or cost. For instance, they may create drug tiers in which the co-payment for brand-name drugs is more than for generic equivalents, or the co-payment for one brand is more than for another.

Also, Part D plans are permitted to do “drug substitution,” in which an individual’s doctor prescribes a drug but the plan covers only its generic form or a different “equivalent” drug. The plan might also require prior authorization for certain restricted drugs; or it can stipulate “step therapy,” which means you must try a less expensive medicine within a particular class of drugs before the plan will pay for a more expensive one.

How Much of Drug’s Cost Will You Have to Pay?

The rules for exactly how much a plan pays can be complicated, so you may need to compare plans carefully. With most plans, you will pay an out-of-pocket deductible for the first $415 of your prescription drug costs for the year. A few plans waive some or all of this deductible. Here are a few additional points to consider when it comes to what percentage of a prescription drug’s cost will come out of your pocket:

After the deductible is reached, a plan pays 75 percent of costs for drugs covered in the plan’s formulary. You are responsible for the other 25 percent. Your portion comes in the form of a co-payment for each prescription; the amount of the co-payment may vary depending on the plan’s drug tiers. This 75-25 split continues until your total prescription drug costs for the year reach $3,820.

The coverage gap begins once you reach your Medicare Part D plan’s initial coverage limit ($3,820 in 2019) and ends when you spend a total of $5,100. In 2019, Part D enrollees will receive a 75 percent discount on the total cost of their brand-name drugs while in the doughnut hole. The full retail cost of the drugs will still apply to getting out of the doughnut hole, even though 75 percent was paid for by others. Enrollees will pay a maximum of 37 percent co-pay on generic drugs while in the coverage gap. Due to stipulations within the Affordable Care Act, this “doughnut hole” will close entirely by the end of 2019.

If the total amount you pay out-of-pocket for prescription drugs during the year reaches $5,100, your plan will again begin coverage at the rate of approximately 95 percent of further costs for covered drugs, with you paying the remaining $3.40 per generic or $8.50 per brand-name prescription, or 5 percent of the prescription cost, whichever is higher.

Can People Get Help With the Cost of a Plan?

If you have low income (up to 135 percent of the federal poverty level) and few assets (up to roughly $14,701.50 for an individual, or $19,858.50 for a couple) other than a home, you might be eligible for a low-income subsidy (LIS) that provides significant help with the costs of a Part D plan. Depending on exactly how much income and how many assets you have, the deductible, coverage gap, and co-payments could all be eliminated or reduced. Applying for an LIS is done separately from enrolling in a plan, and it’s done with the Social Security Administration, not directly with the plan or with Medicare. Get information on the Social Security Administration website, call toll-free at (800) 772-1213, or make an appointment with any local Social Security office.

How to Choose a Medicare Part D Plan

Choosing the right plan—or deciding to switch from the plan you currently have—is not an easy choice. Nor is it one to make lightly. But there are a few steps you can take to make this process as smooth and beneficial as possible.

First, you’ll want to learn what Medicare Part D prescription drug plans are available to you. Medicare’s official website has an online service called the Prescription Drug Plan Finder. If you enter some personal information, it can provide you with a list and contact information for all Part D drug plans sold where you live. It can also help you sort through them by matching the drugs you take regularly and the plans’ lists of covered drugs.

To be sure, sorting through different prescription drug plans and choosing the best one for yourself or for someone you’re caring for can be confusing, even with the information presented below. If you don’t feel comfortable making a good decision on your own, you can get free, expert personalized help from the nonprofit State Health Insurance Assistance program (SHIP), in some states called the Health Insurance Counseling and Advocacy Program (HICAP). The counselors at a local SHIP or HICAP office have experience with the plans offered in that geographic area. Go to Medicare’s list of contacts for each state’s SHIP or HICAP central office, which can then direct you to the local office nearest you.

How to know if a Medicare Part D drug plan covers the medicines you regularly take

The most important aspect of a Medicare Part D drug plan is making sure it provides coverage for the specific drugs you need. To figure out what coverage for your current medicines would be like, take the following steps:

See if your regular prescription medicines are in a Medicare Part D plan’s “formulary” list.

No single Medicare Part D prescription drug plan covers all prescription medicines. Instead, each plan covers only a selected list of drugs, called the plan’s “formulary.” The formulary must include at least one drug—and usually several—in every pharmaceutical category (meaning at least one drug to treat every disease or condition). If you enroll in a plan whose list doesn’t include all the drugs you usually take, that plan probably isn’t any good for you. It would force you to choose between switching drugs to something that’s covered by the plan, or paying the full cost of the non-covered drugs out of your own pocket, defeating the purpose of having a drug plan.

So, your first task when considering any plan is to make sure the plan’s formulary includes the drugs you regularly take. You can do this initially on the Medicare website’s Prescription Drug Finder. But if you’re seriously considering enrolling in a particular plan, make sure to double-check the Medicare site’s information directly with the plan itself, before you enroll. Plans often change the drugs they include in their formularies, and they’ll have the most up-to-date information on the drugs they cover.

Find out if there are restrictions on any of your regular medicines. Even if a specific drug is included in a plan’s formulary list, that doesn’t mean you’ll have automatic access to it. Plans are permitted to place restrictions on drugs, any one of which could make it difficult for you to get coverage for the medicine you want. Before you enroll in any plan, check with the plan itself to see if any restrictions would apply to any of the drugs you regularly use. These restrictions can include:

Some plans list a drug on their formulary but provide coverage only for the generic version, not the brand name.

Plans are allowed to substitute a different but similar drug from the one prescribed by your doctor, though the substituted drug must be within the same pharmaceutical category. This would be the prescription equivalent of your doctor prescribing aspirin and you being given Tylenol or Advil instead.

Insurance companies may place drugs in different tiered categories, charging you higher co-payments for some tiers than for others.

Part D insurance plans may require that you and your doctor get prior approval from the plan before it will pay for a particular drug. Even if the plan authorizes coverage, it’s an inconvenience for you and your doctor and can delay your getting the drug. If the plan refuses authorization, it forces you either to pay the full cost out of pocket for the drug you and your doctor prefer, or to use a different drug.

For a few medicines, Part D plans require a patient to try one or more other drugs—other “steps”—before the plan will cover the drug your doctor prescribed, and it will cover that drug only if the doctor certifies that other steps were not effective.

Find out if the pharmacy where you regularly shop participates in the plan.

Most large pharmacy chains participate in most Medicare Part D plans. But it’s possible that the pharmacy where you regularly get your medicines doesn’t participate in a particular Medicare Part D plan that you’re interested in. If so, you might be forced to go to a different pharmacy that’s less convenient for you, or to order your medicines online.

Figuring the total cost of a Part D prescription drug plan

Every Medicare Care Part D prescription drug plan is going to have variations in cost. To know how much a particular plan might cost you, following the below steps:

Add up the Part D drug plan’s initial costs, which is the monthly premium plus the deductible.

Some Medicare Part D drug plans charge little or no monthly premium, while most charge a monthly premium of $25 to $50 (or even more, in a few cases). The first cost to consider is a Part D plan’s monthly premium.

In addition to premiums, most Part D drug plans have a yearly deductible (limited by Medicare to $415). This means that for drugs covered by the Part D plan, you must spend this deductible amount out of your own pocket before the plan begins to pay anything. (A few Part D plans offer what’s called “first dollar” coverage, which means there’s no deductible at all.) When you consider a particular Part D plan, you have to add the plan’s deductible amount to the monthly co-payments in order to get a complete picture of your initial costs with that plan.

Add up the monthly co-payments the Part D plan would charge for your regular medicines.

Premiums and deductibles are not your only costs with Medicare Part D drug plans. In fact, for most people the largest costs are the co-payments you must pay with each prescription you fill. The usual co-payment is 25 percent of the cost of the drug, but Medicare Part D plans often charge different co-payments for different medicines. To get an accurate picture of how much a particular drug plan would cost you, you’ll have to add up what your co-payments would be for all of the prescription medicines you regularly take.

First, see what the co-payment would be for the brand name or generic version of the drug, whichever is available from the drug plan. If both are available, check the figure on the version you prefer.

Medicare Part D prescription drug plans charge a co-payment per prescription filled. To know how much your co-payments will be, you need to check how many doses of your medicine the Part D plan covers in any one filled prescription. Then, to find out what that drug will cost you, calculate how often you would need to fill the prescription, based on the number of doses you take.

Let’s say, for example, that you take 200 milligrams a day of “Pill A,” which comes in a dose of 100 milligrams per pill. That means you’d take two pills a day, or about 60 pills a month. If each prescription is for 30 pills and has a co-payment of five dollars per prescription, that drug would cost you about ten dollars a month.

See if the Part D drug plan offers any coverage in the “doughnut hole.”

If and when your total prescription drug costs for the year reach $3,820 (combining what the plan pays and what you pay out of pocket), you will pay out of pocket for almost the full cost of your drugs until your drug costs reach a “catastrophic limit” for the year, which is $5,100 in your out-of-pocket costs (not total drug costs). If you reach the catastrophic limit, Part D plans restart coverage, paying 95 percent of further total costs for covered drugs.

This large gap in coverage between the cutoff point and the catastrophic coverage point is known as the “doughnut hole.” A few high-premium Part D plans pay a slightly greater percentage of costs while you’re in the doughnut hole. If your drug expenses are high and you’re likely to find yourself in the doughnut hole for more than a few weeks a year, this coverage may be valuable to you even though it’s likely to be accompanied by a higher monthly premium.

Can I Switch Medicare Part D Plans?

To be sure, a plan that looked good initially may turn out to be a less-than-ideal choice. It may have restrictions that didn’t seem especially important when you signed up for it but have since proven to be a problem. The plan might have also changed its formulary, changed its rules or restrictions, or raised its premiums. Or maybe a new plan is now offered that has better terms. In any of these situations, you can leave your current plan and enroll in a new one. But you must do so by signing up during the open enrollment period from October 15 to December 7. The new plan will be effective January 1.

Where Can We Find More Information About Joining a Part D Plan?

Medicare’s website has information about Part D drug plans available where you live, including the medications currently in each plan’s formulary. Or you can contact Medicare by phone at (800) 633-4227. You can get free, independent expert help in choosing a plan from your local State Health Insurance Assistance Program (SHIP). You can also get independent help online from the Medicare Rights Center.

How to Enroll in Medicare Part D

Anyone eligible for Medicare is guaranteed the right to enroll in any Medicare Plan D prescription drug plan sold in the state where you live during an initial enrollment period. This period begins three months before the month you turn 65, and continues until three months after the month you turned 65. If you don’t sign up for a Part D plan by the end of this period, you have to wait until the Plan D yearly general enrollment period of November 15 through December 31.

And remember: There’s a financial penalty if you don’t enroll in a plan during your initial enrollment period but later decide to join a plan. For each month you delay enrolling after the close of your initial enrollment period, you must pay a 1 percent penalty on the premium price of any plan you eventually join.