Part D Estimated Costs
Understanding how Medicare Part D costs work helps you budget for prescription drug expenses and choose a plan that minimizes your out-of-pocket spending. Here's a breakdown of every cost phase.
How Part D Costs Work
Medicare Part D drug costs follow a structured pattern that changes throughout the year based on your total drug spending. Understanding these phases helps you anticipate your expenses and choose the most cost-effective plan for your medications.
Keep in mind that the total cost of your Part D coverage isn't just the monthly premium — it's the combination of your premium, deductible, copays or coinsurance, and any costs during the coverage gap. A plan with a low premium might actually cost you more overall if it has higher copays for the drugs you take regularly.
That's why we recommend comparing your total estimated annual cost across multiple plans, rather than just looking at monthly premiums. We can help you run this comparison using your actual medication list.
The Five Phases of Part D Costs
Your drug costs change as you move through each phase during the calendar year. Here's what to expect at every stage.
Monthly Premium
You pay a monthly premium to your Part D plan, regardless of whether you use any prescriptions that month. Premiums vary by plan and region. Some Medicare Advantage plans include Part D coverage with no additional premium. If your income exceeds certain thresholds, you may also pay an Income-Related Monthly Adjustment Amount (IRMAA) surcharge on top of your plan premium.
Average monthly premium ranges from $0 to $100+ depending on the plan
Annual Deductible
Before your plan begins to share drug costs, you may need to meet an annual deductible. During this phase, you pay the full negotiated price for your prescriptions. Many plans offer $0 deductibles for generic drugs or for all drugs, though plans with $0 deductibles often have slightly higher monthly premiums.
The maximum Part D deductible is set annually by Medicare
Initial Coverage Period
After meeting your deductible (if applicable), you enter the initial coverage period. During this phase, you and your plan share the cost of your drugs. You typically pay a copay (a flat dollar amount) or coinsurance (a percentage of the drug cost) for each prescription. The amount depends on which formulary tier your drug falls in.
You pay copays or coinsurance; your plan pays the rest
Coverage Gap (Donut Hole)
Historically, after you and your plan spent a combined amount on drugs, you entered the coverage gap where you paid much more out of pocket. Thanks to the Inflation Reduction Act, the coverage gap has been significantly reformed. Brand-name and generic drug costs in the gap have been reduced substantially, making medications much more affordable during this phase.
Recent legislation has greatly reduced or eliminated gap costs
Catastrophic Coverage
Once your total out-of-pocket spending reaches the annual limit, you enter catastrophic coverage. During this phase, you pay nothing or very little for covered drugs for the remainder of the calendar year. The Inflation Reduction Act capped annual out-of-pocket spending for Part D enrollees, providing significant financial protection.
Annual out-of-pocket maximum provides a true spending cap
Copays vs. Coinsurance
Copay
A copay is a fixed dollar amount you pay for a prescription, regardless of the drug's total cost. For example, you might pay a $10 copay for a generic drug and a $45 copay for a preferred brand drug.
Benefit: Predictable costs — you know exactly what you'll pay each time you fill a prescription.
Coinsurance
Coinsurance is a percentage of the drug's cost that you pay. For example, you might pay 25% of the cost of a brand-name drug. This means your out-of-pocket cost varies depending on the drug's price.
Consideration: Costs can vary — a 25% coinsurance on a $500 drug is $125, but on a $50 drug it's only $12.50.
Typical Costs by Formulary Tier
While exact costs vary by plan, here is a general idea of what you can expect to pay during the initial coverage period for each formulary tier:
These are general ranges for illustration purposes. Actual costs depend on your specific plan. We can provide exact costs for your medications.
Extra Help (Low-Income Subsidy)
Medicare's Extra Help program (also called the Low-Income Subsidy or LIS) helps people with limited income and resources pay for Medicare Part D prescription drug coverage. If you qualify, Extra Help can save you thousands of dollars each year on drug costs.
Eligibility is based on your annual income and financial resources (savings, investments, and real estate other than your home). Even if you're not sure whether you qualify, it's worth applying — the potential savings are significant.
You can apply for Extra Help through Social Security online at ssa.gov/extrahelp, by calling Social Security at 1-800-772-1213, or by contacting your local State Health Insurance Assistance Program (SHIP). We can also help you determine if you may be eligible.
Extra Help Benefits Include:
- Help paying the Part D monthly premium
- Lower or $0 annual deductible
- Reduced copays for prescription drugs
- No coverage gap — full coverage continues without interruption
- Available to those with limited income and resources
- Automatic eligibility for those receiving Medicaid, SSI, or Medicare Savings Program benefits
Late Enrollment Penalty
If you don't sign up for Medicare Part D when you're first eligible and you don't have other creditable prescription drug coverage (coverage that's expected to pay at least as much as Medicare's standard Part D plan), you may have to pay a late enrollment penalty when you do enroll.
The penalty is calculated based on how many months you went without creditable coverage. It's added to your monthly Part D premium for as long as you have Part D coverage. The longer you wait, the higher the penalty.
How to Avoid the Penalty
- 1.Enroll in Part D during your Initial Enrollment Period (when you first become eligible for Medicare)
- 2.Maintain creditable drug coverage without a gap of 63 continuous days or more
- 3.Qualify for Extra Help — if you're eligible, you won't owe a penalty
Income-Related Monthly Adjustment (IRMAA)
If your modified adjusted gross income (MAGI) as reported on your IRS tax return from two years ago exceeds certain thresholds, you may pay a higher Part D premium. This additional amount is called the Income-Related Monthly Adjustment Amount (IRMAA).
IRMAA is determined by Social Security based on your tax return and is paid directly to Medicare, not to your Part D plan. The surcharge is assessed in tiers — the higher your income, the more you pay. If your income has decreased due to a life-changing event (retirement, divorce, death of a spouse, etc.), you can request a reconsideration from Social Security.
We can help you understand whether IRMAA applies to your situation and what steps you can take if you believe your income bracket has changed.
Get a Personalized Cost Estimate
Share your medication list and we'll calculate your estimated annual costs across multiple Part D plans — completely free.