Understanding Medicare Part D Costs
Key Takeaways
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The cost for a Part D plan varies depending on your needs, policy, and financial assistance. The premium can range from around $30 up to $100+ depending on deductiblesA deductible is an amount you pay out of pocket before your insurance company covers its portion of your medical bills. For example: If your deductible is $1,000, your insurance company will not cover any costs until you pay the first $1,000 yourself. and drug coverage.
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Your income can affect your premium, known as the income-related monthly adjustment amount (IRMAA).
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If you go 63 days or more without creditable drug coverage after your Initial Enrollment PeriodThe Initial Enrollment Period (IEP) is the seven-month period around your 65th birthday when most people are eligible for the first time to enroll in Medicare. , you may have to pay a late enrollment penaltyThe Medicare Part D late enrollment penalty is a fee added onto your Part D premium if you go 63 consecutive days after your Initial Enrollment Period ends without creditable prescription drug coverage. The penalty generally applies for the lifetime of your Part D plan. .
What is Medicare Part D?
Medicare Part D is a medication insurance program administered through private insurance companies. It’s essential to know Part D plans have:
- Different levels of coverage and costs.
- A specific list of drugs available for each plan.
- A list of in-network pharmacies, which you may be required to visit in order to use your coverage.
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How Much is Medicare Part D?
You pay a monthly premium for prescription drug coverage in addition to your Medicare Part B premium. The Centers for Medicare and Medicaid Services projected the average Part D premium in 2025 would be $46.50, though the cost can vary with different plans.
Part D costs depend on:
- The prescription drugs you need
- The plan you join
- Whether you use a pharmacy in your plan’s network
- Whether the drugs you use are on your plan’s formulary
- Whether you’re eligible for Extra Help (a financial assistance program)
Other costs to consider:
- Medicare Part D monthly premiums
- Medicare Part D annual deductibles
- Copayments or coinsurance
- Late enrollment penalty
Is the Medicare Part D Premium Based on Income?
Your income plays a role in determining your Part D premium. In 2025, you’re required to pay more for your prescription drug plan if you made more than $106,000 as an individual or $212,000 as a couple when filing your most recent tax return. The calculation is known as the income-related monthly adjustment amount (IRMAA).
2025 Medicare Part D IRMAA
How Does Medicare Part D Work?
Medicare Part D plans have different tiers, which determine the costs of prescription drugs on the plan’s formulary list. Medications that fall into the first tier have the lowest copays or copayments. The price goes up with each tier.
Tiers may be organized in various ways, but here’s one example:
- Tier 1 has the lowest copay for generic drugs. To receive approval from the Food and Drug Administration, generic drug makers must prove that their product performs the same way as the corresponding brand name drug. Generic drugs use the same active ingredients as brand name drugs to achieve desired results.
- Tier 2 has a medium copay for preferred brand name drugs. Preferred brand name drugs are medications manufactured by one manufacturer that are typically lower-cost among all brand name drugs. This is partly because these medications have been in the market for some time and are widely accepted).
- Tier 3 has a higher copay for preferred brand and non-preferred brand name drugs. Non-preferred brand name drugs tend to cost more because they are new to the market.
- Tier 4 has a higher copay for non-preferred brand drugs.
- Tier 5, or the Specialty Tier, has the highest copay. It contains very high cost brand and generic drugs, which may require special handling and close monitoring.
Medicare Part D Out-of-Pocket Limit
Starting in 2025, there’s a cap on out-of-pocket costs for drugs covered by Medicare Part D plans. For 2025, the out-of-pocket maximum is $2,000. This limit will be adjusted annually.
The spending cap replaces the previous system, in which high drug costs could reach a coverage gap (known as the Part D donut hole) before catastrophic coverage kicked in.
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How Much Is the Lifetime Late Enrollment Penalty?
You should be aware of Medicare Part D’s lifetime late enrollment penalty if you miss the Initial Enrollment Period. The penalty applies if you go for more than 63 days after your Initial Enrollment Period without creditable drug coverage, defined as coverage equivalent to what you’d get through a Part D plan.
The late enrollment penalty cost is calculated by Medicare when you enroll in a Part D plan. To calculate the penalty, multiply 1% of the national base beneficiary premium (which is projected at $36.78 in 2025) by the number of eligible months you did not have Part D insurance. Then, you round to the nearest ten cents.
Example: Let’s say your Initial Enrollment Period ended March 31, 2022. You waited until December 2024 to join a Part D plan during the Open Enrollment Period. Your policy went into effect on January 1, 2025, which means you went 21 months without creditable coverage.
Here’s how to calculate the penalty:
.21 (multiply 1% by the number of months you went without coverage even though you were eligible to enroll) X $46.50 (2025 average Part D premium) rounded to the nearest $0.10 = $9.77
The cost of the penalty can change if the national premium average increases or decreases. A late enrollment penalty can remain in effect as long as your Part D plan is active.
Do you have more questions about enrollment and how to avoid the penalty? Check out our guide on how to navigate Medicare Part D enrollment.
Are There Financial Assistance Options for Part D?
Medicare offers a program called Extra Help to assist with Part D costs for those with limited income and resources. If you qualify, the program helps cover your premiums, deductibles, and coinsurance costs.
Extra Help Eligibility
To qualify for Extra Help, a person must be on Medicare, have limited resources and income, and reside in one of the 50 states or the District of Columbia. If you’re not sure if you are eligible based on income or resources, you can apply.
Ways you can automatically qualify for Extra Help:
- You already qualify for Medicare and Medicaid
- You are enrolled in a Medicare Savings Program
- You already receive Supplemental Security Income (SSI) benefits
As of 2024, you’re eligible for Extra Help if both apply:
- Your annual income is under $22,590 for individuals or $30,660 for couples.
- Your resources are limited to $17,220 for individuals or $34,360 for couples. Resources include savings, investments, real estate outside of a primary residence, stocks, and more.
How to Apply for Extra Help
If you don’t automatically qualify but meet the requirements listed above, you can apply for Extra Help online , by telephone (1-800-772-1213), or by visiting your local Social Security office. You will need bank account statements, investment statements, stock certificates, tax returns, pension award letters and payroll slips.
What if I don't qualify for Extra Help?
If you don’t qualify for Extra Help, you are required to pay your plan’s monthly premium, a yearly deductible (if your policy has one), and the copays or co-insurance of your drug coverage. However, you do have the right to appeal. You can also re-apply if your income and resources change.
Ways to lower your costs:
- Switch to less expensive or generic drugs
- Look into your state’s Medicaid or State Health Insurance Assistance Program (SHIP) programs
How can I avoid paying a late enrollment penalty?
The easiest way to avoid receiving a late enrollment penalty joining a prescription drug plan when you first become eligible. Even if you don’t need drug coverage at the time, it could save you a significant amount of money if your circumstances change.
Another way to avoid the penalty is by having creditable prescription drug coverage. Your employer or a union usually provides these plans, and they should cover the same costs as Medicare Part D. You won’t have to pay the penalty if you decide to switch to a Part D plan later.
Can I keep my Medigap policy with Part D?
It depends. If you enroll in a Part D plan with Original Medicare, you can keep your Medigap plan. But if you join a Medicare Advantage Plan that includes Part D, you will need to cancel your Medigap policy. You cannot have more than one active plan at a time.
Sources
Costs. Medicare.gov.
Understanding the Extra Help with Your Medicare Prescription Drug Plan. SSA.gov