Medicare Part D
Prescription drug coverage offered through private insurers under Medicare, providing a formulary of covered medications at varying copays and subject to a coverage gap phase.
Medicare Part D is the voluntary outpatient prescription drug benefit available to all Medicare beneficiaries through private prescription drug plans (PDPs) or Medicare Advantage plans with drug coverage (MAPDs). Monthly premiums vary widely — $7–$100/month depending on the plan's formulary and cost-sharing — and high-income enrollees pay an IRMAA surcharge of $12.90–$81/month on top of the plan premium.
Part D plans use a tiered formulary: Tier 1 (preferred generics) might cost $0–$5/fill; Tier 2 (non-preferred generics) $10–$20; Tier 3 (preferred brand names) $40–$80; Tier 4 (non-preferred brands) 25–33% of drug cost; Tier 5 (specialty drugs) 25–33% of drug cost (potentially thousands per fill). The 2024 annual deductible is capped at $545, though many plans have $0 deductible for Tier 1–2 drugs.
Starting in 2025, the Inflation Reduction Act caps Medicare beneficiary out-of-pocket drug costs at $2,000/year, eliminating the catastrophic coverage phase and significantly restructuring cost-sharing above the deductible. This is the most significant Part D reform since the program launched in 2006.
Real-World Example
A beneficiary taking a Tier 4 brand-name medication at $400/month hit $2,000 in total drug spending by April under the 2025 cap structure, paying nothing for covered prescriptions for the rest of the calendar year.