Medicare Part D provides prescription drug coverage for Medicare beneficiaries. While this coverage is optional, there are costs associated with enrolling in Part D plans. Understanding what you may have to pay can help you choose the right plan to fit your prescription needs and budget.
Most Part D prescription drug plans charge a monthly premium. This is paid in addition to your Medicare Part B premium. For 2023, the average basic Part D premium is around $32 per month, but costs can vary significantly between plans.
The monthly premium depends on factors like:
- The insurance company offering the plan
- Your geographic location
- The drugs covered
- Pharmacies in the plan’s network
You must continue paying your Part D premium every month to keep your coverage. Premiums are typically deducted from your Social Security check. If not, you’ll get a bill directly from your insurer.
Part D Late Enrollment Penalty
If you don’t sign up for Part D when you are first eligible, you may have to pay a late enrollment penalty if you enroll later. This penalty is added to your monthly premium.
You’ll pay the penalty for as long as you have Part D coverage. Common reasons for the penalty include:
- Delaying Part D enrollment because you have other drug coverage that later ends
- Going 63+ days in a row without any drug coverage
The cost of the penalty depends on how long you went without coverage. In 2023, the standard penalty amount is $0.50 for every month you were eligible but didn’t enroll.
Higher Income Surcharges
If your income is above $97,000 as an individual or $194,000 as a married couple (in 2022), you’ll pay an extra surcharge called the Part D Income-Related Monthly Adjustment Amount (IRMAA).
This ranges from an extra $12.20 up to $77.90 per month in addition to your normal premium. The surcharge is based on your tax returns from 2 years prior.
No Extra Costs for Most
While Part D has potential monthly premiums, penalties, and income surcharges, most enrollees just pay their plan’s standard premium:
Nearly 90% of Part D enrollees don’t pay a penalty.
Over 97% don’t pay the high income surcharges.
So for most Medicare beneficiaries, the only cost is the monthly plan premium you select. And even that premium may be covered in full or part by:
- A former employer or union
- Military benefits
- Federal or state assistance programs
For many retirees, Part D coverage comes at low or no monthly cost due to this supplemental coverage.
Extra Help for Low Incomes
If your income is below around $20,000 as an individual or $27,000 as a married couple, you likely qualify for Extra Help from Medicare. This can lower your prescription drug costs including:
- $0 monthly Part D premiums
- $0 deductibles
- Low fixed copays (like $3 or $10)
So those with the lowest incomes pay nothing for Part D coverage. To get Extra Help, you must apply through Social Security. Eligibility and benefits are based on your income, resources, and state.
Part D Cost Sharing
In addition to premiums, Part D has other cost sharing that applies when filling prescriptions:
- Annual deductible (does not apply to all plans)
- Copays or coinsurance
- Coverage gap where you pay 25% of costs
- Catastrophic coverage with low cost sharing over $7,400 in spending
However, with Extra Help, the deductible, gap, and catastrophic costs are eliminated or reduced. And the set copays ($0, $1.45, $4.15, or $10 in 2023) apply until you hit the catastrophic limit.
So while Part D includes cost sharing, subsidies and assistance programs keep it affordable for most enrollees. Understanding the components can help you pick a plan that fits your budget.
Do I Have to Stay Enrolled in Part D?
Part D enrollment is voluntary, but there are a few things to consider if thinking of leaving coverage:
You can only sign up during fall open enrollment or if you qualify for a special enrollment period. So leaving may lock you out until next year.
You’ll need adequate prescription coverage from somewhere else like an employer plan or the VA to avoid penalties.
Retiree plans may require you keep Part D to receive contributions toward your premiums.
You’ll still owe the Part D late enrollment penalty if you enroll again down the road after a coverage gap.
So while Part D is optional, maintaining continuous coverage is wise if you need prescription drugs. Dropping out for short periods can lead to permanent penalties.
Can I Get Billed for Part D IRMAA?
If your income is over the threshold for high income surcharges, you must pay the IRMAA to keep Part D coverage. This applies even if your premium is covered by an employer, retirement plan, or other third party.
If their premium contributions stop, you’ll be responsible for the monthly premium and IRMAA to avoid losing benefits. Failing to pay your billed IRMAA can get you disenrolled from the plan.
Can I Appeal My IRMAA?
If you’ve had a reduction in income, you can request the IRMAA be lowered or removed by contacting Social Security and submitting an appeal.
Reasons for appeal include:
- You’ve stopped working or reduced work hours
- You lost income-producing property
- You experienced a marriage, divorce, or death of a spouse
With proof of reduced income, your IRMAA can be recalculated to reflect your new financial situation. This may lower or eliminate the surcharge.
Can Part D Ever Be Free?
While most enrollees pay something for Part D through plan premiums and cost sharing, there are a few scenarios where coverage is free:
You qualify for Extra Help and/or Medicaid: Those with very low incomes pay nothing for premiums or deductibles.
You’re still in the initial coverage period: Cost sharing amounts don’t start until you’ve received around $4,700 worth of drugs.
You’ve reached catastrophic coverage: Once your out-of-pocket costs exceed $7,400, you’ll pay just a small coinsurance or copay for the rest of the plan year.
So while Part D isn’t free for everyone, assistance programs and built-in caps on cost sharing mean most people get valuable coverage at an affordable overall cost.
The Bottom Line
While Medicare Part D prescription drug plans involve premiums, penalties, deductibles, and other cost sharing, a variety of subsidies and coverage options exist to reduce expenses. Understanding what you may have to pay based on your income, drug needs, and plan can help you get valuable coverage at a cost you can handle.
How and When to Enroll in Medicare Part D
Is Medicare Part D optional or mandatory?
Is Medicare Part D automatically deducted from Social Security?
What is the average cost of Medicare Part D?
What is penalty for not having Medicare Part D?