What is a Prescription Drug Plan?

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Medicare Part D (prescription drug coverage) can be added to Original Medicare when a beneficiary enrolls in a Medicare prescription drug program.

Rather than having coverage provided by Original Medicare, some people opt to have their coverage through a Medicare health plan like a Health Maintenance Organization (HMO) or a Preferred Provider Organization (PPO).  These plans are called Medicare Advantage plans, or Medicare Part C, and are offered by private insurance companies.  These plans may also include prescription drug coverage and other benefits not offered under Original Medicare.


Medicare prescription drug coverage, which began January 1, 2006, helps pay for prescriptions obtained at a retail or mail-order pharmacy.

Medicare prescription drug plans are run by commercial insurance companies who contract with Medicare to negotiate discounted drug prices on behalf of their enrollees.

All drug plans must meet or exceed the standard benefits as defined by the federal government. The drug list (formulary) for each plan must include a range of drugs in each prescribed category.  All Medicare drug plans generally must cover at least two drugs in each category of drugs, but the plans can choose which specific drugs are covered in each category.


Beneficiaries can join a Medicare prescription drug plan when they first become eligible for Medicare during their Initial Coverage Election Period (ICEP)

Beneficiaries can also enroll into a Medicare prescription drug plan during the Annual Election Period (AEP) between October 15th – December 7th each year to change their existing Medicare prescription drug plan or enroll into a Medicare prescription drug plan if not currently on one.

Beneficiaries may also use the Medicare Advantage Open Enrollment Period (MAOEP) between January 1st-March 31st if they are enrolled into a Medicare Advantage plan and wish to return to Original Medicare with a stand-alone Medicare prescription drug plan.

In certain situations, beneficiaries may qualify for a Special Election Period to enroll into or change their existing Medicare prescription drug plan.

Typically, after a beneficiary enrolls into a Medicare prescription drug plan they must remain with that plan for the remainder of the year.


Medicare prescription drug coverage cost varies depending on the plan.  Most beneficiaries will pay a monthly premium for a Medicare prescription drug coverage plan.

Beneficiaries will also pay a share of the cost for their prescription drug, including a deductible, copayment, and/or coinsurance.

People with limited income and resources may be eligible for Extra Help through the Social Security Administration who will help pay some of their prescription drug costs.


DEDUCTIBLE PERIOD: The 2021 CMS Part D deductible maximum is $445.  No plans deductibles can exceed this amount for 2021 but can be less.

  • Some plans may cover some cost of the prescription prior to meeting the deductible but this depends on the plan’s design.

INITIAL COVERAGE PERIOD: Once the plan’s deductible is met benefices enter into the plan’s initial coverage period which ends after the drugs cost accumulated by both the plan and beneficiary reach $4,130 in 2021.

  • In the initial coverage period, beneficiaries will pay the copay or coinsurance set by the plan.

COVERAGE GAP (DONUT HOLE):  After the total drug cost reaches $4,130 beneficiaries enter into the coverage gap.

  • During the coverage gap, beneficiaries will pay 25% of the cost of all their prescriptions.
  • Beneficiaries will leave the coverage gap when the total amount the beneficiary has spent reaches $6,550.

CATASTROPHIC PERIOD:  Once the amount the beneficiary spends reaches $6,550, in 2021 the amount the beneficiary has to pay for the remainder of the year lowers significantly.

  • During the catastrophic phase, beneficiaries will pay 5% of the cost of each drug or $3.70 for generics and $9.20 for brands (whichever’s greater).

If a beneficiary changes Medicare prescription drug plans in the middle of a colander year their Part d accumulations will transfer to the new plan.


There are a variety of methods plans use to manage their members’ access to drug coverage.

FORMULARIES: A list of medications covered by the prescription drug plan.  Formularies vary by plan, meaning not all plans cover the same medications and are not equal, but here are some of the ways plans manage cost:

  • TIER ASSIGNMENT: Some Medicare prescription drug plans will place medications in varying tiers to either push more cost onto the beneficiary or to help the beneficiary lower their prescription drug cost.
    • Most Medicare prescription drug plans have between 5-6 tiers.
    • If a beneficiary is taking a drug in a higher tier and their physician feels the beneficiary needs that drug instead of a similar drug in a lower tier, they can file for an exception and ask the plan for a lower copayment.
  • STEP THERAPY: A type of prior authorization. In most cases, beneficiaries must first try a less expensive drug that has been proven effective for most people with a specific medical condition.
    • However, if a beneficiary has already tried a similar, less expensive drug that didn’t work, or if the doctor believes that because of their medical condition it is medically necessary to take a step-therapy drug, the member, their representative, or the prescriber can contact the plan to request an exception.
  • QUANTITY LIMITS:  For safety and cost reasons, plans may limit how much medication a beneficiary can get over a certain period of time.
    • If a beneficiary requires additional quantities, then the beneficiary, their representative, or the prescriber may need to contact the plan to request an exception if he/she believes the additional amount is medically necessary and provide supporting documentation.


The following drugs are excluded by law from Medicare coverage:

  • Anorexia, weight loss, or weight gain drugs
  • Erectile dysfunction drugs when used for the treatment of sexual or erectile dysfunction, unless such agents are used to treat a condition, other than sexual or erectile dysfunction, for which the agents have been approved by FDA.
  • Fertility Drugs
  • Drugs for cosmetic or lifestyle purposes (e.g., hair growth)
  • Drugs for symptomatic relief of coughs, colds, prescription vitamins, and mineral products.
  • Non-prescription drugs

Plans may choose to cover excluded drugs at their own cost or share the cost with the beneficiaries.


Medicare Prescription Drug Coverage (Part D) Premium and IRMAA

In 2021, the Part D national base beneficiary premium is $33.06.  Some carriers may set premiums higher or lower than the national base premium.

Beneficiaries may be subject to a Part D- Income Related Monthly Adjustment Amount (IRMAA) and must pay the extra amount in addition to their plan’s monthly premium.

SSA determines if a beneficiary owes a Part D IRMAA based on the income that was reported on their IRS tax return two years prior.  The income that counts is the adjusted gross income that was reported plus other forms of tax-exempt income.

If a beneficiary yearly come in 2019 was $87K or less for an individual or $174K or less for a couple, the beneficiary will pay the Medicare prescription drug premium set by the plan

If a beneficiary’s yearly income in 2019 was higher than $87K for an individual or $174K for a couple they may have to pay a higher amount for their Medicare prescription drug premium.

The IRMAA is adjusted each year, as it is calculated from the annual beneficiary base premium.

If beneficiaries experience a life-changing event that causes their income to go down, they are eligible to request a reduction in their IRMMA amount.  Beneficiaries must complete Social Security form SSA-44 and return to Social Security for consideration.

Extra Help with Drug Plan Cost (Low-Income Subsidy-(LIS)

People with Medicare who have limited incomes and resources may be able to get Extra Help with the costs of Medicare prescription drug coverage.  You must be enrolled in a Medicare prescription drug plan to get Extra Help.

The Extra Help program offers the following benefits:

  • May pay a beneficiaries Part D premium up to the state-specific benchmark amount
  • Lowers the cost of prescription drug benefits
  • Opens a special enrollment period once per calendar quarter during the first 9-months of the year to enroll into or switch Part D plans
  • Eliminates any Part D late enrollment penalty that a beneficiary may have incurred.

Certain groups of people automatically qualify for Extra Help and do not have to apply:

  • Beneficiaries with Medicare and Full Medicaid benefits
  • Beneficiaries who get Supplemental Security Income (SSI)
  • Beneficiaries who get help from Medicaid paying their Medicare premiums
  • All other beneficiaries must apply to see if they qualify for Extra Help


Beneficiaries can apply for Extra Help by:

  • Completing a paper application
  • Applying in-person at their local Social Security office
  • Applying online at SSA.gov

Beneficiaries can apply on their own behalf, of the application can be completed by a personal representative with the authority to act on their behalf, such as a Power of Attorney, or they can ask someone else to assist them such as the agent.