Medicare prescription drug coverage can be confusing, but the basics are easier to understand once you know where the options come from. Original Medicare (Parts A and B) doesn’t cover most medications you pick up at the pharmacy, so you’ll need either a stand-alone Part D plan or a Medicare Advantage plan that includes drug coverage. This guide explains how these options work, what costs to expect, and how plans decide which drugs they cover. It also outlines the steps to compare plans so you can choose the one that best fits your needs.
Understanding Medicare prescription drug coverage
The first key point is that original Medicare (Parts A and B) does not cover prescription drugs taken at home, even if you pay to supplement it with a Medigap plan. Part A may cover medications given during a hospital stay, and Part B covers some drugs administered in a doctor’s office, such as chemotherapy or certain injections. But the prescriptions you pick up at your pharmacy aren’t included.
For that, you need one of the following:
- A stand-alone Medicare Part D plan, which you add to original Medicare.
- A Medicare Advantage (Part C) plan that includes prescription drug coverage.
Most people choose one of these two paths. If you don’t have drug coverage in place when you become eligible for Medicare, you could face late-enrollment penalties, which are added to your plan’s premium permanently.
How Medicare Part D works
Medicare Part D plans are offered by private insurance companies approved by Medicare. You can compare and choose a plan during your initial enrollment period or during the annual open enrollment period each fall.
Although each plan is different, they all follow the same general structure:
Formularies and tiers: A formulary is the list of medications covered by a plan. Each plan groups its medications into tiers, which usually range from low-cost generics to high-cost specialty drugs. What you’ll pay depends on the tier your medication falls into. Generics will cost less than brand names, and specialty medications will require higher copays or coinsurance.
Since each plan has its own covered medications and costs, before you enroll, it’s essential to use a tool like the Medicare plan finder to find and compare plans that cover all your medications at the best possible cost. Also, since plans can change from year to year, each fall you’ll want to review the changes to your existing plan and use the same tool to see if you can do better.
Pharmacy networks: Plans also have preferred pharmacy networks. Copays are typically lower when you use a preferred pharmacy, so it makes sense to find one that is convenient for you. Also, if you take a long-term medication, many plans offer mail-order options with a 90-day supply at a reduced cost.
Costs and coverage stages: Part D uses a three-stage payment model throughout each calendar year, depending on your usage. While not everyone goes through every stage, you’ll be able to predict your out-of-pocket costs better if you understand the structure.
- Deductible stage: In this initial stage, you pay the full cost of your prescriptions until you meet the deductible amount designated for your plan. Some plans waive the deductible for lower-tier drugs.
- Initial coverage stage: After the deductible, you pay a copay or coinsurance for your medications, while the plan pays the rest.
- Catastrophic coverage: You enter catastrophic coverage once your out-of-pocket spending hits a defined threshold. Your costs then drop significantly for the rest of the year, and you may have $0 copays.
For people taking only a few medications, reaching the later stages is unlikely. However, for those with chronic conditions calling for expensive treatments, the structure of your specific plan can significantly affect annual costs.
The federal government helps millions of Medicare beneficiaries afford their prescription drug coverage through Extra Help/Low-Income Subsidy (LIS) programs.
How Medicare Advantage (Part C) covers prescriptions
Medicare Advantage (MA) plans, offered by private insurers, bundle your hospital, medical, and (more often than not) prescription drug coverage into a single plan. If you enroll in an MA plan that includes drug benefits, you don’t need a separate Part D plan, nor can you enroll in one. If it doesn’t include drug benefits, you are free to find a Part D plan that works best for you.
The prescription portion of a Medicare Advantage plan functions similarly to a Part D plan: There’s a formulary with tiers, possible deductibles, pharmacy networks, and the same three-stage coverage model for annual drug costs.
Prescription coverage rules usually reflect the same restrictions that set MA coverage apart from original Medicare. For example:
- You may need to use in-network pharmacies.
- You may require prior authorization for certain medications to be covered.
- Copays and cost-sharing can differ depending on whether you receive care in or out of network.
Convenience is the main advantage of MA plans. You have one card, one plan, and one contact point for customer service. The trade-off is that you’re working within a managed care structure, which can include more rules about where and how you receive your medications and other health services.
Which drugs are covered and which are not
Medicare requires Part D and Medicare Advantage plans to cover a broad range of medications, including drugs for most chronic conditions. They’re also required to cover at least two drugs in every therapeutic category and all drugs for certain protected classes, such as cancer medications and HIV/AIDS treatments.
Note, however, that not every medication is covered. Here are some standard exclusions:
- Drugs for weight loss or weight gain.
- Over-the-counter medications.
- Drugs used for cosmetic purposes.
- Fertility medications.
- Prescription vitamins (with some exceptions).
Even when a drug is covered, plans may require step therapy, where you must try a lower-cost alternative before approving a higher-cost one. Your plan may also require prior authorization or limit the quantity you can receive in a single prescription fill.
If the medication you need isn’t covered, you or your doctor can request an exception. Plans are required to review exception requests promptly.
Choosing the right prescription drug coverage
There is no single best drug plan. The right choice depends on your current prescriptions, your budget, and how you prefer to receive your care.
A few practical tips:
- Review your plan’s covered medications annually. Formularies, costs, and your needs can change every year.
- Use Medicare’s plan finder tool during open enrollment to compare savings across plans.
- Check your plan’s pharmacy networks. Getting your prescriptions from a preferred pharmacy can lower your costs.
- Consider your broader health needs. If you want full-service bundled care, Medicare Advantage may be a good option. If you value flexibility in choosing providers, original Medicare with a Part D plan might be a better fit.
