Introduction to Medicare Part D
So many letters in the Medicare world: A, B, C, and now D! Medicare Part D refers to help with the cost of prescription drugs. It is run by private insurance companies and each plan has different prices and different formularies. No, it is not automatically covered in Original Medicare or Supplement Plans but does go along with them. It is often already covered in Advantage Plans; in fact, you cannot have an Advantage Plan with a Part D plan at the same time. (The few exceptions to this rule include some Private Fee for Service plans and Medical Savings Accounts). You may have Part A and/or Part B with a Part D on its own, but most people take a Supplement Plan and Part D together.
What Is a Medicare Part D Formulary?
A formulary is just a list of drugs that a private insurance company covers. They are usually ranked in tiers with lower tiers being the lowest costing drugs. In Medicare, typically Tiers 1 and 2 come with very low or no cost-sharing and do not include a deductible. Tiers 3 and above tend to include a deductible that must be paid first before the insurance company starts to pay, and the cost-sharing is higher.
Each private insurance company typically has a team of physicians, pharmacists, and other healthcare professionals to help determine their formulary. They also decide if there are quantity or dosage limits. This formulary often changes from year to year, so be watchful to make sure your drugs will still be covered. (If you need help, call a knowledgeable broker like me to help sift through the information!)
What If I Don’t Sign Up for Part D?
There are some people who choose to not sign up for Medicare Part D for one reason or another. Maybe they don’t have prescriptions yet and don’t want to pay money for another plan. Maybe the extra cost is too much. Or maybe they feel like they can get a better deal on their own. Whatever the reason, if they do not sign up and do not have prescription coverage when they first turn 65, they will start to accrue a late penalty. This penalty starts to accumulate after 63 consecutive days without coverage.
Fortunately, this penalty will not kick in until a person signs up for Part D plan later in life. Unfortunately, when you do sign up, the penalty will be applied every month and will last as long as you have a plan, even if you change insurance companies. (As of 2025, the penalty is about .40 cents for every month without coverage or $4.40 for every year without coverage).
How Do I Avoid a Late Penalty?
The easiest way to avoid a late penalty is to have “creditable” coverage in place. If you are covered under employer coverage past age 65, the Social Security Administration will verify that your coverage counts as creditable. Creditable means it meets the basic minimum standard allowed by Medicare. Creditable coverage avoids a late penalty. Other coverage that counts as creditable would be through the VA (Veterans Affairs) or something similar. Check with the Social Security if you are unsure if your coverage counts as creditable. Coverage on a Medicare Advantage Plan with prescription coverage counts as creditable too.
The second way to avoid a late penalty if one is already in place is to sign up for a Low-Income Subsidy, also known as “Extra Help.” This program is run through the Social Security Administration (apply here) and is based on your income and assets. Qualifying individuals within income limits may receive help with prescription costs and eliminate their late penalty.
Concluding Thoughts
Don’t overlook Medicare Part D! It might seem like no big deal, but prescription costs can really rack up the medical bills quickly. Plus, no one likes to see their money wasted on penalties. Make sure you look at all of your options, find the coverage that fits you AND your budget, and get something put in place.
