NerdWallet

Nov. 10, 2020, 10:59 a.m. EST

Your guide to Medicare prescription drug plans and how they work

If you spend money on prescriptions, it’s important to have the right plan

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By Walecia Konrad


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This article is reprinted by permission from NerdWallet .

You won’t find outpatient drug coverage in Medicare Part A or Part B, even though medicines are a large percentage of many seniors’ health care budgets. That’s one reason why, starting in 2006, Medicare began offering Part D, an optional program that helps cover the cost of prescription drugs.

Prescription drug plans are offered by private insurers approved by Medicare. Most recipients pay a monthly premium and various cost-sharing responsibilities, such as copays and deductibles. Signing up on time is important because you may pay a late penalty if you don’t sign up when you are first eligible, usually around your 65th birthday.

You can sign up for Medicare Part D in two ways:

Medicare Part D stand-alone plans

If you have Original Medicare, you can enroll separately in a  Part D  plan during your initial enrollment or during the annual  Medicare open enrollment period , which continues through Dec. 7.

Medicare drug plans cover generic and brand-name drugs. All plans must cover the same drug categories, such as asthma or diabetes medicines, but providers can choose which specific drugs are covered in each drug category.

Each Medicare Part D plan has a formulary — a list of medicines it covers. This list will likely include both brand-name and generic drugs and at least two drugs in the most commonly prescribed categories. Formularies change from year to year and even within the year.

Also read: This is what your Social Security check will look like next year — and why

Some Medicare D plans have restrictions, including authorization before a drug is prescribed and step therapy, which requires generic and lower-cost brand-name drugs before the most expensive drug is used.

Premiums for stand-alone Medicare Part D vary, and deductibles for plan year 2021 can be no more than $445.

Medicare Advantage Plans with Part D coverage

Medicare Advantage Plans are also sold by private insurers and provide the same coverage found in Original Medicare Part A and Part B. Many provide extra benefits such as some dental and vision coverage. A large percentage of Medicare Advantage Plans include Part D prescription drug coverage.

Related: Your guide to Medicare open enrollment: How to shop, switch, and compare plans

As with stand-alone plans, each Medicare Advantage Plan that includes Part D coverage has its own formulary and also may have restrictions.

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