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How Does Medicare Part D Coverage Work?

What Drugs Are Covered?

Each Medicare Advantage plan with prescription drug coverage or stand-alone prescription drug plan has its own list of covered drugs, called a formulary. Our pharmacy department and doctors decide which drugs to include based on quality, safety, and how well they work.

Every drug listed in our formularies is put into a cost group called tiers. For the lowest tier, you pay the lowest copayment. As you take a step up to the next tier, what you pay increases.

Learn more about our plans' drug coverage on our Pharmacy page.

What Is the Coverage Gap?

Medicare prescription drug coverage has 3 different phases of coverage — initial coverage, the coverage gap, and catastrophic coverage.

Initial Coverage

During initial coverage, your prescription drug coverage works like normal health insurance. Once you meet your deductible, you just pay copayments or coinsurance for your drugs based on what tier they fall under, and we pay the rest.

Talk to your doctor about generic drugs for extra savings, or look at ways to save on our plans.

The Coverage Gap

The coverage gap, also called the donut hole, is a temporary limit on what a plan will cover for drugs. It begins after you and your drug plan have spent a certain amount on covered drugs. Not everyone will enter the coverage gap.

Catastrophic Coverage

Catastrophic coverage makes sure you only pay a small coinsurance or copayment for drugs for the rest of the year after you leave the coverage gap.

If you get Extra Help, you won't enter the coverage gap.

What Is the Part D Late Enrollment Penalty?

The Part D late enrollment penalty is a an amount added to your Part D monthly premium because you didn't sign up for drug coverage when it was first available to you. If you go without a Part D plan or a Medicare Advantage plan with drug coverage for 63 days or more in a row after your Initial Enrollment Period (IEP) is over, you might have to pay this penalty.

How Can I Avoid the Part D Penalty?

Join a Medicare Advantage plan with drug coverage or a Part D plan when you're first eligible.

During your IEP, if you sign up for a plan with drug coverage, you won't have to pay a penalty.

Don't go 63 days or more in a row without drug coverage.

After 63 days, you will have to pay a penalty to add drug coverage.

Get covered by a Medicare Advantage plan with drug coverage, a stand-alone prescription drug plan, or other creditable prescription drug coverage, like coverage from an employer or union, TRICARE, or the Department of Veterans Affairs, before then to avoid this.

Your plan must tell you each year if your drug coverage is creditable coverage. Keep this information because you might need it to join a Medicare drug plan later.

Tell your plan about any other drug coverage you had.

When you join a Medicare drug plan, they'll send you a letter if they think you went 63 days or more without creditable drug coverage. That letter will also have a form asking about any other drug coverage you had.

Fill this out with the information you saved and return it to your plan by the deadline in the letter to make sure you don't have to pay a penalty.

How Much Is the Part D Penalty?

Your penalty depends on how long you went without prescription drug coverage.

Medicare calculates it by multiplying 1% of the national base beneficiary premium by the number of full, uncovered months you didn't have coverage. This is rounded to the nearest 10 cents and added to your monthly Part D premium.

The national base beneficiary premium changes each year, so your penalty amount might increase each year.


Medicare determines the amount of the penalty. Here is how it works:

First count the number of full months that you delayed enrolling in a Medicare drug plan, after you were eligible to enroll. Or count the number of full months in which you did not have creditable prescription drug coverage, if the break in coverage was 63 days or more. The penalty is 1% for every month that you didn’t have creditable coverage. For example, if you go 14 months without coverage, the penalty will be 14%.

Then Medicare determines the amount of the average monthly premium for Medicare drug plans in the nation from the previous year. For 2021, this average premium amount is $33.06.

To calculate your monthly penalty, you multiply the penalty percentage and the average monthly premium and then round it to the nearest 10 cents. In the example here it would be 14% times $33.06, which equals $4.63. This rounds to $4.60. This amount would be added to the monthly premium for someone with a Part D late enrollment penalty.

There are three important things to note about this monthly Part D late enrollment penalty:

First, the penalty may change each year, because the average monthly premium can change each year. If the national average premium (as determined by Medicare) increases, your penalty will increase.

Second, you will continue to pay a penalty every month for as long as you are enrolled in a plan that has Medicare Part D drug benefits, even if you change plans.

Third, if you are under 65 and currently receiving Medicare benefits, the Part D late enrollment penalty will reset when you turn 65. After age 65, your Part D late enrollment penalty will be based only on the months that you don’t have coverage after your initial enrollment period for aging into Medicare.

This number will be re-calculated each year with that year's national base beneficiary premium, and that new number will be added to your premium for that year.

If you get Extra Help, you won't pay the late enrollment penalty.