Navigating Medicare Prescription Drug Plans: Your Guide to Staying Healthy

Medicare prescription drug coverage is often called Medicare Part D. It’s there to help with the cost of prescription medications, which is important as these costs can really add up. It’s important to note that Medicare Part D isn’t automatic — you have to sign up for it separately. It’s available either through a stand-alone plan you can add to Original Medicare, or it might be included if you’re in a Medicare Advantage Plan,

These plans come from private insurance companies, and they work alongside Medicare to cover prescription drugs. The plans do have a monthly premium, and you’ll likely have some out-of-pocket costs for your meds, but it’s usually much more affordable than paying for prescriptions entirely on your own.

An important thing to remember is that plans can vary in which drugs they cover, so it’s good to check that your meds are included in a plan's 'formulary' — that’s just a fancy word for the list of covered drugs.

Starting in 2025, Medicare is offering a new Prescription Payment Plan to help people manage their out-of-pocket drug costs in a simpler way.

Here’s how it works:

The big change is that Medicare Part D will cap your annual out-of-pocket costs for prescriptions at $2,000. So once you’ve spent $2,000 on medications during the year, Medicare will cover the rest of your drug costs, no more payments needed.

But to make even that amount more manageable, Medicare will let you spread the payments out over the year. Instead of paying the full $2,000 up front, you’ll be able to break it down into monthly installments. For example, instead of a big one-time bill, you could have a monthly payment around $167.

This is especially helpful for people who face “sticker shock” when a high-cost medication hits all at once. While it doesn’t reduce the total cost you pay, it makes it easier to handle by spacing it out over time. You’ll still get coverage through your Part D or Medicare Advantage plan, and now with this option, budgeting for prescription drugs will hopefully be a little less stressful​.


The 3 Most Important Things to Know:

  • When you start the year, you and your plan share the cost of your prescriptions. This is when you pay your regular copays and coinsurance, and your plan covers the rest.

  • If your out-of-pocket spending on drugs reaches a specific limit (about $7,400 in 2023), you exit the donut hole. Now, you’ll only pay a small copay or coinsurance for your prescriptions for the rest of the year.

  • In 2025, Medicare will introduce a feature called Smoothing as part of its drug payment plans, which makes it easier to handle out-of-pocket costs for prescription drugs. Here’s the idea behind it:

    With Smoothing, people who have high prescription costs at the start of the year can spread out those payments over time, rather than paying large sums all at once. For example, if you normally hit the $2,000 out-of-pocket limit early in the year, you’ll have the option to break that total down into manageable monthly payments. This way, a big January bill might turn into smaller, predictable monthly amounts.

    It doesn’t change the total amount you’ll pay, but it can make budgeting for prescriptions much easier

With a little bit of effort, you can find a plan that fits your needs and helps keep you healthy!

The penalty for not signing up for Medicare Part D when you’re first eligible can add up, so it’s good to know how it works.

Here’s the scoop: if you don’t join a Medicare drug plan when you’re first eligible and go 63 days or more without other drug coverage that’s as good as Medicare (they call that “creditable coverage”), you might have to pay a late enrollment penalty.

This penalty is calculated by taking 1% of the “national base beneficiary premium” — which is around $33 in recent years — and multiplying it by the number of months you went without coverage. So, for each month you delayed, you’re looking at a 1% increase. That amount gets added to your monthly Part D premium for as long as you have Medicare prescription drug coverage.

The longer you go without coverage, the bigger the penalty. So, signing up when you’re first eligible is usually the best way to avoid it!