11.5 Part D, Prescription Drug Benefit

The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) established a voluntary prescription drug program known as Medicare Part D, which is offered through private insurance companies.

Individuals who are entitled to or enrolled in Medicare Part A and/or Part B may choose to enroll in Part D. Coverage can be obtained either through a standalone Prescription Drug Plan (PDP) or through a Medicare Advantage plan that includes prescription drug coverage.

Enrollees in a standalone PDP are responsible for a monthly premium, an annual deductible, and copayments. The cost of premiums and coverage levels may vary based on income and the specific plan selected.

After the deductible is met, the beneficiary pays copayments until reaching a specified out-of-pocket threshold. At that point, the individual enters the coverage gap (commonly known as the “donut hole”), where discounts apply but additional out-of-pocket costs must still be met. Once the next threshold is reached, catastrophic coverage begins, and the plan pays approximately 95% of covered drug costs for the remainder of the year.

This process follows a repeating structure each year:

Deductible → Initial coverage with copays → Coverage gap (donut hole) → Catastrophic coverage

Formulary: A formulary is a list or classification of prescription drugs covered under a Medicare Part D plan. It identifies which medications are included in the plan’s coverage.

Only expenses for formulary drugs are applied toward the plan’s benefit limits.