Medicare Part D
A voluntary Medicare program providing prescription drug coverage through private insurers.
What is Medicare Part D?
Medicare Part D is the voluntary prescription drug benefit added to Medicare in 2006 under the Medicare Prescription Drug, Improvement, and Modernization Act. Coverage is offered through private insurance companies approved by CMS, either as standalone Prescription Drug Plans (PDPs) added to Original Medicare, or bundled into Medicare Advantage plans. Part D plans use formularies to determine which drugs are covered and at what tier (cost-sharing level). Premiums, deductibles, and copays vary by plan. The Inflation Reduction Act of 2022 made significant reforms: it created a $2,000 annual out-of-pocket cap on Part D drug spending (effective 2025), eliminated the coverage gap ('donut hole'), and required Medicare to negotiate prices for certain high-cost drugs. High-income beneficiaries pay an IRMAA surcharge in addition to their plan's premium.
Example
A Medicare beneficiary taking a brand-name diabetes medication enrolls in a Part D plan that places the drug on Tier 3 with a $50 copay. Their annual drug spending reaches $800 before hitting the deductible. Starting in 2025, once their out-of-pocket drug costs reach $2,000 for the year, Part D covers 100% of remaining covered drug costs — eliminating catastrophic drug expense exposure.
Source: CMS — Medicare Part D