Part D Plan Costs — Premiums & the Donut Hole

Medicare Part D prescription drug plans usually are not free. If you have Part D coverage, you may have to pay premiums, "donut hole" drug costs, and other out-of-pocket costs like deductibles.

The average Part D plan premium was under $40 in 2014, according a Kaiser Family Foundation (KFF) report. If your income is over a certain level per year, or if you enrolled in Part D late, you may need to pay an extra monthly fee for your coverage.

You also may have to pay out-of-pocket costs before using your Part D coverage. Some Medicare Part D plans come with a deductible of up to $320 in 2015, which you may have to meet before your plan covers anything, according to Medicare.gov. In addition to that, your plan may charge you co-insurance or a co-payment for filling individual prescriptions.

The "donut hole" is another source of Part D plan costs. It is a coverage gap that you may fall into if you and your plan spend over a certain amount on your drugs during a calendar year. While in the donut hole, you may have to pay higher out-of-pocket costs for prescription drugs.

Plan premiums

Your Part D plan premiums will depend on the type of plan you enroll in and the insurance company you choose. The average Part D plan premium was $37.27 in 2014, according to KFF, but your premiums may differ depending on your unique personal situation.

In addition to your Part D plan premiums, you may have to pay extra monthly costs from income-related adjustments or a late enrollment penalty.

Income-related adjustments

If your yearly income is above a certain level, you must pay a monthly adjustment amount in addition to your plan premium. This is called a Part D income-related monthly adjustment amount (Part D-IRMAA).

You must pay the Part D-IRMAA directly to Medicare, not your Part D plan provider, according to Medicare.gov. Most people have the extra amount removed from their Social Security checks.

Your monthly adjustment is based off your tax returns from 2 years ago. The chart below from Medicare.gov shows the details for 2015:

2015 monthly Part D plan costs, based on 2013 income
If you file an individual tax return If you file a joint tax return If you file a married & separate tax return Your 2015 monthly costs
$85,000 or less $170,000 or less $85,000 or less Your Part D plan premium
$85,000 - $107,000 $170,000 - $214,000 N/A $12.30 + your Part D plan premium
$107,000 - $160,000 $214,000 - $320,000 N/A $31.80 + your Part D plan premium
$160,000 - $214,000 $320,000 - $428,000 $85,000 - $129,000 $51.30 + your Part D plan premium
Above $214,000 Above $428,000 Above $129,000 $70.80 + your Part D plan premium

Late enrollment penalty

If you wait to enroll in a Part D plan, you may face a late enrollment penalty, according to Medicare.gov. This may apply if you miss your Initial Enrollment Period (IEP) and have a period of 63 days or more in a row when you do not have Part D coverage or another form of creditable prescription drug coverage.

Your late enrollment penalty amount depends on how long you went without creditable prescription drug coverage after you became eligible for Medicare.

In 2015, the monthly Part D late enrollment penalty is about $1 for every 3 months that you were eligible for a Part D plan but did not have creditable prescription drug coverage. So if you went 36 months without creditable coverage, your 2015 monthly penalty would be about $12.

Medicare.gov provides more information about how to calculate your late enrollment penalty.

Your Medicare Part D plan will notify you if you owe a penalty. If you do, you may have to pay this penalty for as long as you have Part D coverage.

If you receive Medicare Extra Help, you do not have to pay the penalty.

Out-of-pocket costs

Part D plans have several out-of-pocket costs including yearly deductibles, co-payments, and co-insurance, according to Medicare.gov.

Part D yearly deductibles are the amount you must pay before your plan starts covering its portion of prescription medication. Each Part D plan may have a different deductible, and some plans have no deductible. In 2015, just under 60% all Part D plans have a deductible, according to KFF.

For 2015, the Medicare program caps Part D yearly deductibles at $320. Most plans with a deductible charge the standard $320 deductible, according to KFF.

Part D co-payments and co-insurance are the amount you pay for each prescription drug after you have met your yearly deductible.

A co-payment is a set amount for all prescription drugs in a specific formulary tier. For example, a Tier 1 prescription drug may have a $10 co-payment.

Co-insurance is a payment based on a percentage of the drug’s total cost. For example, if your co-insurance is 20%, a $25 drug would cost you $5.

The pharmacy you use may affect your Part D plan’s co-payments and co-insurance depending on whether it is an in-network pharmacy. Our Part D benefits page has more information about network pharmacies.

The "donut hole"

Most Part D plans have a temporary coverage gap, which is often called the "donut hole". A donut hole is a period where you have to pay higher out-of-pocket costs for your prescription drugs.

This coverage gap starts once you and your Part D plan have spent a certain amount on your covered prescription drugs for the year. In 2015, this amount is $2,960. It lasts until the end of the year or until you and your plan reach $4,700 in total spending on drugs for the 2015 year, whichever comes first.

Once you reach the donut hole, you will pay a certain percentage of the Part D plan’s cost for covered drugs. If you enter the donut hole in 2015, you will pay 45% of the cost of brand name drugs and 65% of the cost of generic drugs while in the coverage gap.

The percentage you have to pay while in the donut hole will gradually decrease every year until 2020 due to a provision of the Affordable Care Act. Medicare.gov provides more information about the closing of the coverage gap.

Getting out of the coverage gap

Although you must pay a certain percentage of your prescription drug costs while in the donut hole, a higher percentage of the drugs’ cost will count toward out-of-pocket costs. Once your out-of-pocket drug costs reach a certain level ($4,700 in 2015), you qualify for "catastrophic coverage" and only have to pay a small co-insurance or co-payment for covered drugs for the rest of the year.

The following out-of-pocket drug costs help you reach the catastrophic coverage level, according to Medicare.gov:

  1. Yearly deductible, co-insurance, and co-payments
  2. Discounts you receive on brand-name drugs in the donut hole
  3. What you pay out of pocket while in the donut hole

Items such as the Part D plan premium, pharmacy dispensing fees, and costs for non-covered prescriptions do not count toward reaching the catastrophic coverage level.

If you receive Medicare Extra Help, you will not enter the coverage gap.