Does Medicare Pay for Drugs? How Coverage Works

Medicare, a federal health insurance program, provides coverage for millions of Americans. As individuals approach or reach age 65, navigating healthcare coverage becomes a significant consideration, particularly concerning prescription drugs. Understanding the various parts of Medicare and their roles in drug coverage is crucial for managing healthcare expenses.

Medicare’s Approach to Drug Coverage

Medicare has several parts, each covering different aspects of healthcare, including prescription drugs. The type of drug and its administration location typically determine which part provides coverage.

Medicare Part A, Hospital Insurance, primarily covers inpatient hospital stays, skilled nursing facility care, hospice, and some home health services. Prescription drugs administered during an inpatient stay or in a skilled nursing facility generally fall under Part A.

Medicare Part B, Medical Insurance, covers doctor’s services, outpatient care, durable medical equipment, and some preventive services. For prescription drugs, Part B covers a limited scope of outpatient medications, typically administered by a doctor or provider in an outpatient setting. Examples include infusions, injections, certain vaccines, chemotherapy in a clinic, or a flu shot at a doctor’s office.

Medicare Part D is the primary avenue for most outpatient prescription drug coverage. Part D plans cover a wide range of self-administered generic and brand-name medications, typically filled at a pharmacy. Individuals can enroll in a stand-alone Part D plan or obtain this coverage through a Medicare Advantage Plan.

Medicare Part C, Medicare Advantage, offers an alternative way to receive Medicare benefits. These plans typically combine Part A, Part B, and often Part D into one comprehensive plan. Many Medicare Advantage Plans (MA-PDs) include prescription drug coverage.

Understanding Medicare Part D

Medicare Part D plans help beneficiaries manage outpatient prescription drug costs, with a structure involving several coverage and cost-sharing phases. These plans are offered by private insurance companies contracting with Medicare, and beneficiaries pay a monthly premium that varies by plan and income.

Most Part D plans include an annual deductible, the amount a beneficiary pays for prescriptions before the plan covers costs. For 2025, the standard Part D deductible is $590, though some plans offer a lower or zero deductible with a higher premium. After the deductible, beneficiaries enter the initial coverage phase, paying a copayment or coinsurance. For 2025, beneficiaries typically pay 25% of drug costs, while the plan pays 65% and the manufacturer covers 10% for applicable drugs.

For 2025, the coverage gap (or “donut hole”) is eliminated. Once out-of-pocket spending on covered drugs reaches $2,000 in 2025, beneficiaries enter the catastrophic coverage phase. This $2,000 cap includes the deductible, copayments, and coinsurance. In this phase, beneficiaries pay nothing for covered Part D drugs for the remainder of the calendar year. The plan pays 60% of drug costs, the manufacturer pays 20% for applicable drugs, and Medicare covers the remaining 20% (or 40% for generics).

Each Part D plan maintains a formulary, a list of covered drugs organized into tiers with different cost-sharing levels. Tier 1 typically includes preferred generic drugs with the lowest copayments. Higher tiers may include non-preferred generics, preferred brand-name drugs, non-preferred brand-name drugs, and specialty drugs, each with progressively higher costs. Plans must cover at least two drugs in most categories and nearly all drugs in certain categories, such as HIV/AIDS treatments and anticancer drugs.

Enrolling in a Prescription Drug Plan

Enrolling in a Medicare prescription drug plan involves specific periods. The Initial Enrollment Period (IEP) is the first opportunity for most individuals to sign up for Medicare Part D. This seven-month window begins three months before the month an individual turns 65, includes the birth month, and extends for three months afterward. For example, if an individual’s birthday is in June, their IEP runs from March 1st to September 30th.

If the IEP is missed, individuals may have other opportunities to enroll or change Part D coverage. The Annual Enrollment Period (AEP), also known as Open Enrollment, occurs each year from October 15th to December 7th, with coverage starting January 1st of the following year. This period allows beneficiaries to join, switch, or disenroll from a Part D plan.

Special Enrollment Periods (SEPs) allow individuals to enroll or switch Part D plans outside of the IEP or AEP for certain qualifying life events. Common triggers include moving to a new service area, losing other creditable prescription drug coverage (like employer-sponsored insurance), or moving into a nursing home. SEP duration and conditions vary by event. For instance, losing creditable coverage typically allows 63 days to enroll without penalty.

For those who miss their IEP and do not qualify for an SEP, the General Enrollment Period (GEP) runs from January 1st to March 31st each year. Coverage for plans elected during the GEP typically begins the month after enrollment. However, enrolling during the GEP can result in a late enrollment penalty if there was a continuous period of 63 days or more without Medicare Part D or other creditable drug coverage. This penalty is added to the monthly premium for as long as the individual has Part D coverage.

When choosing a plan, beneficiaries should use the Medicare Plan Finder tool on Medicare.gov. This online tool allows comparison of plans based on specific needs, including current prescriptions and preferred pharmacies. To use it effectively, have a list of all current medications, dosages, frequency, and preferred pharmacies. Enrollment can often be completed online through Medicare.gov, directly with the chosen plan, or by phone.

Strategies for Reducing Drug Costs

Managing prescription drug costs under Medicare Part D involves understanding plan structure and seeking ways to reduce out-of-pocket expenses.

Extra Help, also known as the Low-Income Subsidy (LIS), is a federal program assisting individuals with limited income and resources in paying for Medicare Part D premiums, deductibles, and copayments. Eligibility is based on annually updated income and resource limits. For 2025, a single person’s income limit is less than $23,475 and resources less than $17,600; for a married couple, income less than $31,725 and resources less than $35,130. Individuals receiving Medicaid, Supplemental Security Income (SSI), or state help with Medicare Part B premiums may automatically qualify. If approved, beneficiaries pay no monthly premiums or deductibles for their Part D plan and have significantly reduced copayments, such as up to $4.90 for generics and $12.15 for brand-name drugs in 2025.

Some states offer State Pharmaceutical Assistance Programs (SPAPs) for additional financial assistance with prescription drug costs. These programs vary by state in eligibility and benefits, helping cover premiums or other out-of-pocket expenses. Beneficiaries should check with their state’s health department or aging services for information on available SPAPs.

Pharmaceutical manufacturers sometimes offer Patient Assistance Programs (PAPs) for specific high-cost drugs. These programs are designed for individuals who meet income criteria and lack sufficient insurance coverage. Information on PAPs can often be found on the manufacturer’s website or by consulting a healthcare provider or pharmacist.

Choosing generic drugs over brand-name medications can lead to substantial savings. Generics contain the same active ingredients and work the same way as brand-name counterparts but are typically much less expensive. Most Part D plans structure formularies with lower copayments or coinsurance for generics, especially those in preferred tiers.

Using pharmacies preferred by your Part D plan can result in lower costs, as plans often negotiate discounted rates. Mail-order pharmacies offer convenience and potential cost savings, particularly for maintenance medications. Many Part D plans provide incentives, such as lower copayments, for mail-order services. Discussing medication options with a healthcare provider is important; doctors may suggest less expensive drug alternatives, generic versions, or dosage adjustments that could reduce overall costs without compromising treatment effectiveness.