A Medicare drug plan, formally called Medicare Part D, is optional prescription drug coverage available to everyone enrolled in Medicare. It helps pay for both brand-name and generic medications and is provided through private insurance companies approved by Medicare. As of 2025, Part D plans cap your total out-of-pocket drug spending at $2,000 per year, a significant change from previous years when costs could climb much higher.
How Part D Plans Are Structured
Medicare drug coverage comes in two forms. The first is a stand-alone Prescription Drug Plan (PDP), which you add to Original Medicare (Parts A and B) specifically for drug coverage. The second is a Medicare Advantage Prescription Drug plan (MA-PD), which bundles drug coverage into a Medicare Advantage plan that already includes your medical benefits. You can’t have both at the same time. If you’re in Original Medicare, you pick a stand-alone drug plan. If you’re in a Medicare Advantage plan, your drug coverage typically comes packaged with it.
Both types are sold by private insurers, and each plan sets its own premiums, deductibles, and list of covered drugs. That means two Part D plans in the same zip code can charge very different amounts for the same medication.
What Part D Covers and What It Doesn’t
Every Part D plan must cover a broad range of prescription medications, but each plan maintains its own formulary, which is the specific list of drugs it will pay for. Formularies organize drugs into tiers that determine how much you pay. Lower tiers (preferred generics, for example) cost the least. Higher tiers (specialty or non-preferred brand-name drugs) cost the most. Plans can change their formularies from year to year, so a drug that was covered last year might not be covered the same way this year.
Certain categories of drugs are excluded from Part D by law. These include medications used for weight loss, cosmetic purposes, or hair growth. Over-the-counter drugs generally aren’t covered, with the exception of insulin and supplies for injecting it. Cough and cold medications, most prescription vitamins (other than prenatal vitamins and fluoride preparations), and smoking cessation products available over the counter are also excluded.
What You’ll Pay in 2025
The biggest recent change to Part D is the $2,000 annual cap on out-of-pocket drug spending, which took effect in 2025 thanks to the Inflation Reduction Act. Before this cap existed, people taking expensive medications could face thousands of dollars in costs once they hit a coverage phase known as the “donut hole,” or coverage gap. That gap has now been eliminated entirely.
The Part D benefit now works in three phases. First, you pay your plan’s deductible (if it has one). Then you enter the initial coverage phase, where you pay copays or coinsurance for each prescription while your plan covers the rest. Once your out-of-pocket spending reaches $2,000, you enter the catastrophic phase and pay nothing more for covered drugs for the rest of the year.
Starting in 2025, there’s also a new Medicare Prescription Payment Plan that lets you spread your out-of-pocket drug costs across the calendar year in monthly installments instead of paying large amounts at the pharmacy counter. When you fill a prescription, you pay nothing at the pharmacy. Instead, your plan sends you a monthly bill based on your accumulated costs divided by the months remaining in the year. Your monthly payment can fluctuate as you fill new prescriptions or refills, but you’ll never pay more than you would have owed without the payment plan.
When to Enroll
Your first opportunity to sign up for Part D is your Initial Enrollment Period, which lasts seven months: it starts three months before the month you turn 65 and ends three months after. If you miss that window and don’t have other qualifying drug coverage (called “creditable coverage,” meaning it’s at least as good as Part D), you’ll face a late enrollment penalty whenever you do eventually sign up.
After your initial window, you can join, switch, or drop a Part D plan during the Annual Election Period, which runs from October 15 through December 7 each year. Changes made during this period take effect January 1. Special Enrollment Periods also exist for specific life events, such as losing employer coverage, losing Medicaid, or being released from incarceration.
The Late Enrollment Penalty
If you go 63 or more consecutive days without Part D or creditable coverage and later enroll, Medicare adds a permanent penalty to your monthly premium. The penalty equals 1% of the national base beneficiary premium (which was $34.70 in 2024) multiplied by the number of full months you went without coverage. So if you went 20 months without coverage and the base premium is around $35, your penalty would be roughly $7 per month, rounded to the nearest ten cents, added to your premium for as long as you have Part D. It doesn’t go away.
This penalty is the main reason many people enroll in a Part D plan even if they take few or no medications. The cost of a basic plan is often less than the penalty you’d accumulate by waiting.
Help With Drug Costs
If your income and savings are limited, you may qualify for Extra Help, also called the Low-Income Subsidy. This program pays for some or all of your Part D premiums, deductibles, and copays. For 2026, the income limit is $23,940 for an individual and $32,460 for a married couple. Resource limits (savings, investments, and similar assets, but not your home or car) are $18,090 for an individual and $36,100 for a couple. Even if you’re slightly above these thresholds, you may still qualify for partial assistance, so it’s worth applying through Social Security.