Medicare

Cost of Medicare Part D in 2022 and How it Works

Cost of Medicare Part D in 2022 and How it Works

Find Cheap Medicare Plans in Your Area

Currently insured?

Medicare Part D, or Medicare drug coverage, is a prescription drug policy that can help you pay for a variety of medications. You can purchase a stand-alone Part D policy and pair it with Medicare Parts A and B.

Costs depend on the Part D plan you select, but rates can be higher if you decide to wait and join a Part D plan after your initial enrollment period ends, which is usually about three months after you turn 65.

What is Medicare Part D?

Medicare Part D is the prescription drug portion of Medicare that helps members pay for brand-name and generic prescription drugs.

Medicare Part D plans are handled by private insurance companies. All policies are required by Medicare to provide a standard level of coverage, meaning they pay for a core set of prescription drugs. But each plan available on the market usually comes with a different combination of coverage and cost sharing . Before enrolling, review plans to find out whether your drugs are covered and how much you'll be required to pay out of pocket.

If you need coverage for a specific medication, it is important to view the plan's drug formulary carefully to see if the drug you need is covered. You can find coverage information in the insurance company's plan documents or by visiting the Medicare.gov Part D comparison tool.

Within the formularies, Medicare Part D provides coverage tiers that group drugs with similar costs and copays. Tiers often specify "preferred" versus "nonpreferred" brand-name drugs. Preferred drugs are brand-name drugs the insurer believes to be more cost-effective compared to alternatives. If a drug falls into the nonpreferred category, it is because the insurer found that a generic or preferred version would serve the same need at a lower cost.

Generally, a drug that costs less is in a lower tier, while more expensive drugs are in higher tiers. Here is an example of what a Medicare tier list could look like:

  • Tier 1: Generic prescription drugs (low copays)
  • Tier 2: Preferred and brand-name drugs (medium copays)
  • Tier 3: Nonpreferred brand-name drugs (higher copays)
  • Tier 4: Very expensive prescription drugs (highest copays)

Be sure to review both the formulary and tier list for each policy for cost and coverage details so you can find the best policy for your needs. It's a good idea to have your list of prescriptions at hand, along with the dosage for each, when you begin to research plan options.

Medicare Part D eligibility and enrollment

You must first enroll in Medicare A and B before you can apply for Part D. To qualify for Part D, you must fall into one of the below categories:

  • Be over the age of 65
  • Have a disability if you are under the age of 65
  • Have end-stage renal disease
  • Have Lou Gehrig's disease (ALS)
The Part D initial enrollment period usually begins three months before your 65th birthday and ends three months after, similar to Part B. If your birthday falls on the 1st of the month, your enrollment period starts four months prior to your birth month and ends two months after.
{"backgroundColor":"ice","content":"\nThe Part D initial enrollment period usually begins three months before your 65th birthday and ends three months after, similar to Part B. If your birthday falls on the 1st of the month, your enrollment period starts four months prior to your birth month and ends two months after.\n","padding":"double"}

What does Medicare Part D cost for 2022?

Your Medicare Part D insurance provider sets your monthly plan premium and bills you directly for that amount. If you’re required to pay a penalty for enrolling late in Part D, that amount is also part of your bill and is paid to your insurance company.

A third charge, which is fairly rare, is a Part D rate adjustment based on income. If you must pay extra for Part D due to a higher income, that amount goes directly to Medicare, usually through a deduction from your monthly Social Security benefit payment. For railroad retirees, the fees are deducted from your Railroad Retirement Board payment. If you don’t get a monthly benefit payment, Medicare will send you a bill.

Fee type
Who you pay
Part D monthly premiumYour insurance company
Part D income adjustment, if anyMedicare, via a bill or electronic deduction
Part D late enrollment fee, if anyYour insurance company, as part of your monthly bill
If you want your Part D premium deducted from your Social Security benefit payment, contact your insurance company to see if it offers that option. The same process would apply if your monthly benefit payment comes from the Railroad Retirement Board.
{"backgroundColor":"ice","content":"\nIf you want your Part D premium deducted from your Social Security benefit payment, contact your insurance company to see if it offers that option. The same process would apply if your monthly benefit payment comes from the Railroad Retirement Board.\n","padding":"double"}

How are Medicare Part D rates calculated?

Medicare sets your Part D rate based on your reported income, similar to how Medicare Part B rates are determined. The income you reported for 2020 will be used to set your Part D costs for 2022.

Say you reported a 2020 income of $100,000 and are enrolled in a Part D plan for $50 per month. Based on your income, you would pay the cost of your plan ($50) plus an income adjustment of $12.40, for a total Part D premium of $62.40. Keep in mind that you pay the $50 to your insurance company, while the income adjustment fee ($12.40) goes directly to Medicare.

Below we have provided a full table regarding the income adjustments based on different levels of taxable income:

Individual taxable income
Joint taxable income
Monthly Part B premium
$91,000 or less$182,000 or lessYour plan cost
$91,000 to $114,000$182,000 to $228,000$12.40 + your basic plan cost
$114,000 to $142,000$228,000 to $284,000$32.10 + your basic plan cost
$142,000 to $170,000$284,000 to $340,000$51.70 + your basic plan cost
$170,000 to $500,000$340,000 to $750,000$71.30 + your basic plan cost
$500,000 or above$750,000 or above$77.90 + your basic plan cost

Medicare Part D late enrollment fee

Like Medicare Part B, Medicare Part D charges a late enrollment fee. This will occur if you decided not to enroll in Part D during your initial enrollment period and did not have other creditable prescription drug coverage during that time.

The late enrollment penalty is a permanent amount that is added to your overall Medicare Part D premium for as long as you have Part D.

In general, the penalty varies depending on how late you decide to enroll. Medicare calculates this amount by multiplying 1% by the number of months that you were not enrolled in a prescription drug plan, then by the national base beneficiary premium , which is $33.37 for the 2022 plan year. (The base beneficiary premium will change year to year, so your penalty will also change going forward.)

For example, if you enroll in Part D exactly 12 months after your initial enrollment period, your penalty will be:

12% x $33.37, or $4

This means you will pay $4 extra every month that you are enrolled in Medicare Part D. The penalty is part of your monthly premium, and you pay it directly to your insurance provider.

{"backgroundColor":"ice","content":"\u003C\/p\u003E\n\n\u003Cp\u003EFor example, if you enroll in Part D exactly 12 months after your initial enrollment period, your penalty will be:\u003C\/p\u003E\n\n\u003Cp\u003E\u003Cdiv class=\"ShortcodeAlign--root ShortcodeAlign--center\"\u003E\n \u003Cdiv class=\"ShortcodeAlign--container\"\u003E \n \u003Cdiv class=\"ShortcodePullquote--root\"\u003E\n \u003Cp class=\"ShortcodePullquote--text ShortcodePullquote--black\"\u003E\n 12% x $33.37, or $4\n \u003C\/p\u003E\n\u003C\/div\u003E\n \u003C\/div\u003E\n\u003C\/div\u003E\n\u003C\/p\u003E\n\n\u003Cp\u003EThis means you will pay $4 extra every month that you are enrolled in Medicare Part D. The penalty is part of your monthly premium, and you pay it directly to your insurance provider.\u003C\/p\u003E\n\n\u003Cp\u003E","padding":"double"}

Medicare Part D cost-sharing phases

There are four phases of Part D cost sharing. Out-of-pocket costs charged during the initial deductible and initial coverage periods will vary by plan. During the coverage gap, or donut hole, you pay more for prescriptions until you spend enough to qualify for the catastrophic period.

  1. Initial deductible. During this time, you pay the full price for prescriptions until your costs reach a certain amount specified in your plan. The maximum deductible for 2022 is $480, but your plan may charge less.
  2. Initial coverage period (ICP). After you meet your deductible, you enter the ICP. While in the ICP, you pay your normal coinsurance or copays for prescriptions, according to your plan benefits, until total costs (paid by both you and your insurer) reach $4,430.
  3. Coverage gap or donut hole. This is the time between the initial coverage period and the catastrophic period, during which you pay 25% of the cost of generic and brand-name prescriptions.
  4. Catastrophic benefit period. The catastrophic benefit period kicks in once you have paid out $7,050 in total prescription costs. You then pay either a copay or 5% coinsurance for prescriptions (whichever is greater) for the remainder of the calendar year.

Below is an example showing the four Part D cost-sharing phases and potential fees associated with each. In this scenario, the sample insurance plan charges the maximum deductible of $480, then a member coinsurance of 30% for each prescription, with the plan paying 70%, during the ICP.

Part D Benefit periods

Initial deductible

  • Who pays
    • You: 100%
  • What you'll pay
    • $480
  • What the plan pays
    • $0

Total spent: $480

Initial coverage period (ICP)

  • Who pays
    • You: 30%
    • Plan: 70%
  • What you'll pay
    • Up to $1,185 plus the $480 deductible already paid, for a total of $1,665
  • What the plan pays
    • $2,765 in plan payments

Total spent: $4,430

Coverage gap or donut hole

  • Who pays
    • You: 25% of drug cost and a part of the drug dispensing fee
    • Plan: 75% of generic drug price, 5% of brand-name price
    • Manufacturer: 70% discount toward brand-name drugs
  • What you'll pay
    • $5,385
  • What the plan pays
    • Plan payments are not applied toward donut hole costs. Only member fees (shown above) and the manufacturer's 70% discount "payments" are applied to the total out-of-pocket cost during this phase.

Total spent: $5,385

Catastrophic benefit period

  • Who pays
    • You: copay or coinsurance
    • Plan: the balance after your payment
  • What you'll pay
    • Either 5% coinsurance or a copay of $3.95 (generic) or $9.85 (brand), whichever is greater
  • What the plan pays
    • The remainder of the drug cost

Total spent: All prescription costs for the remainder of the calendar year.

Buying brand-name drugs helps you reach the catastrophic benefit period sooner. This is because while you pay just 25% of the charge, almost the full price of any brand-name drug counts toward your gap amount. With generic drugs, only the amount you pay (your 25%) counts toward the gap amount.

{"backgroundColor":"ice","content":"\u003C\/p\u003E\n\n\u003Cp\u003EBuying brand-name drugs helps you reach the catastrophic benefit period sooner. This is because while you pay just 25% of the charge, \u003Cstrong\u003Ealmost the full price of any brand-name drug\u003C\/strong\u003E counts toward your gap amount. With generic drugs, only the amount you pay (your 25%) counts toward the gap amount. \n","padding":"double"}

When choosing a Medicare Part D policy, consider these possible scenarios:

Before you begin your search, compile your list of prescriptions and the dosage for each and have that handy for reference.

I need coverage for a specific drug

If you need coverage for a very specific drug, then enrolling in Medicare Part D is typically the best option. In this case, you should carefully review the drug documentation, called a formulary, for every plan you're considering, to confirm the drug you need will be covered.

I take a lot of generic drugs

If you rely mostly on generic drugs, then adding Part D when you enroll in Original Medicare may make the most sense. Review the tier lists for each plan, and pick a policy with small copayments for generic, lower-tier drugs.

I don't have drug costs now, but I want coverage for the future

In this case, browse for a drug plan to pair with your Original Medicare policies. Try to find a plan with a lower monthly rate since you do not need expansive coverage right now. If your prescription needs increase later, you can change to a policy with a higher level of benefits, usually during an open enrollment period. When you switch, you won't incur any late enrollment penalties as long as your coverage continues without a break of 63 days or more.

I want a simplified experience where I get my drug costs and benefits from one plan

If you are looking for a policy where all your drug costs are grouped together and a plan that comes with extra benefits, then Medicare Advantage, also called Medicare Part C, may be best for you. Make sure the Part C plans you are comparing specifically offer drug coverage.

Frequently asked questions

Can I get help with drug costs even if I have Medicare Part D?

Even if you have Medicare Part D, you may be able to reduce costs through a program called Extra Help, which assists with premiums, deductibles, copays and coinsurance. With Extra Help, you are not subject to late enrollment fees or costs related to the Part D donut hole.

You also can search for a Pharmaceutical Assistance Program in your state using this Medicare.gov resource.

What can I do to avoid Part D late enrollment penalties?

To avoid late enrollment fees, join a Part D plan (or a Medicare Advantage plan with drug coverage) when you first become eligible. Even if you don't take prescriptions now, you'll have coverage when you need it without paying a penalty. Similarly, enroll in Part D or Medicare Advantage as soon as you lose other creditable drug coverage. Keep records of your prior coverage to share with your insurance company upon request.

Methodology

Cost, eligibility and enrollment information for Medicare Part D was sourced from Medicare's website, Medicare.gov. Specific areas of focus were sections on how to get prescription drug coverage as well as costs for Medicare drug coverage.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.