Medicare Part D Explained: Everything You Need to Know About Prescription Drug Coverage (2025)

You can have excellent hospital and doctor coverage, but if you can't afford your medications, everything falls apart. That's why Medicare Part D exists—it helps cover the cost of prescription drugs you pick up at the pharmacy.

Part D is optional, but skipping it is risky. Without drug coverage, you could face thousands of dollars in medication expenses. And if you delay enrollment, you'll pay a late penalty for life unless you had creditable drug coverage.

This 2025 guide explains exactly how Part D works, what it costs, and how to choose a plan that actually covers your medications.

What Is Medicare Part D?

Medicare Part D is prescription drug insurance offered by private insurance companies approved by Medicare.

You can get Part D in one of two ways:

• Add a standalone Part D plan to Original Medicare (Parts A + B), or
• Choose a Medicare Advantage plan (Part C) that includes drug coverage.

Important: Part D only covers medications you pick up at the pharmacy. Drugs given or infused in a doctor's office fall under Part B.

What Part D Covers

Part D must cover:

1. At least two drugs in every therapeutic class, including:

• Antidepressants
• Antipsychotics
• Anticonvulsants (seizure meds)
• Immunosuppressants (for transplant patients)
• Anticancer drugs

2. "Always Covered" Classes (must cover "all or substantially all" drugs):

• HIV/AIDS medications
• Antidepressants
• Antipsychotics
• Anticonvulsants
• Immunosuppressants
• Anticancer drugs

3. Common medications:

• Blood pressure medications
• Statins (cholesterol)
• Diabetes medications (including insulin)
• Antibiotics
• Inhalers
• Thyroid medications
• Mental health medications
• Heart medications

But: Just because Medicare requires coverage for the category doesn't mean your plan covers your specific drug — or covers it affordably. Every plan has its own list.

How Part D Plans Work: Formularies and Tiers

Every Part D plan has a formulary—a list of covered drugs. Formularies are divided into tiers, which determine your copay or coinsurance.

Typical Tier Structure

These are common examples, but vary by plan:

• Tier 1: Preferred generics (lowest cost)
• Tier 2: Generic drugs (low cost)
• Tier 3: Preferred brand-name drugs (moderate cost)
• Tier 4: Non-preferred brands (higher cost)
• Tier 5: Specialty drugs (highest cost, usually percentage coinsurance)
• Tier 6: Select care drugs (if the plan offers this tier, often $0)

Restrictions (Even When Drugs Are "Covered")

Plans can impose restrictions:

Prior Authorization (PA): Your doctor must prove the drug is medically necessary before the plan covers it.

Step Therapy: You must try a cheaper medication first and show it didn't work.

Quantity Limits: Your plan limits how much you can get at once (e.g., "30 pills every 30 days").

Many seniors are surprised when a drug is "covered" but effectively blocked by restrictions.

What Part D Costs in 2025

Monthly Premium

• Varies by plan: typically $30–$100+ per month
• National base premium: $36.78 (used only for penalty calculations)

Income-Related Monthly Adjustment Amount (IRMAA)

Higher earners pay extra on top of their plan's premium:

The 2025 Part D Coverage Changes — Very Important

The "donut hole" (coverage gap) is eliminated.

As of 2025, Medicare Part D has a much simpler structure with a major new benefit:

Phase 1: Deductible Phase — You pay 100% until you meet the plan's deductible (up to $590, if your plan has one).

Phase 2: Initial Coverage Phase — You pay copays or coinsurance based on the tier.

Phase 3: Catastrophic Phase (NEW 2025 RULE) — Once your out-of-pocket costs hit $2,000 for the year, you pay $0 for covered drugs for the rest of the year.

How to Choose the Right Part D Plan

Step 1: Make a Full Medication List

Include:

• Drug name (brand or generic)
• Dosage (e.g., 10mg, 20mg)
• How often you take it
• Quantity per month
• Your preferred pharmacy

Step 2: Use Medicare's Plan Finder

Visit Medicare.gov/plan-compare. The tool shows:

• Which plans cover your drugs
• Estimated annual costs (premium + drug costs)
• Copays for each medication
• Any restrictions (prior auth, step therapy, quantity limits)
• Preferred pharmacies
• Mail-order pricing

Don't pick based on premium alone. A $20/month plan might cost you $3,000 in drug costs, while a $60/month plan might cost you $1,200 in drugs.

Step 3: Check Pharmacy Networks

Drug costs vary based on:

• Preferred pharmacies (lowest cost)
• Standard network pharmacies (higher cost)
• Mail order (often cheapest for maintenance meds)

Step 4: Review Your Plan Every Year

Plans change formularies, copays, and pharmacy networks every January 1. What worked this year might not work next year.

Late Enrollment Penalty (LEP)

If you delay Part D without creditable coverage, you will pay a penalty for life.

Penalty = 1% of national base premium × number of months late

National base premium (2025): $36.78

Example: You delay 24 months = 24% penalty = $8.83/month added to your premium forever

Creditable coverage includes:

• Employer or union drug plans
• VA drug coverage
• TRICARE
• Federal employee health benefits

Always get proof of creditable coverage in writing.

Extra Help (Low-Income Subsidy)

Extra Help can dramatically lower your:

• Monthly premiums
• Deductibles
• Copays ($0–$4.50 per prescription)

You may qualify if your:

• Income is around $23,000 (individual) or $31,000 (couple)
• Resources are around $17,000 (individual) or $34,000 (couple)

Many seniors qualify and don't realize it. Apply at SSA.gov or call Social Security at 1-800-772-1213.

The Bottom Line

Part D is essential if you take prescription medications—and even if you don't currently, you should enroll to avoid lifetime penalties.

Disclaimer: This information is for educational purposes only and does not constitute medical, legal, or financial advice. Government program rules change frequently—verify current information with official sources.