How Much Does Medicare Part D Cost?

Understanding the Donut Hole and More

Before Part D began in 2006, Medicare beneficiaries spent an average of $2,318 out of pocket on their medications. After Part D, prescription drug coverage, while not free, did become more manageable for seniors. Out of pocket expenses are now associated with premiums, deductibles, copayments, and coinsurance.

It is important to understand the costs associated with Part D plans so you can budget your health care. To do that, you need to learn some lingo and how costs are spread across various categories.

When does the medicare part d donut hole apply?
Illustration by Brianna Gilmartin, Verywell 

Creditable Prescription Drug Coverage

The Centers for Medicare and Medicaid Services (CMS) requires Part D plans to offer at least two medications per drug category. In addition, they have six classes of medications—anticonvulsants, antidepressants, antipsychotics, cancer drugs, HIV/AIDS drugs, and immunosuppressant drugs—where most, if not all, medications have to be covered. These rules, among others, set a standard that is known as creditable coverage.

Examples of plans with creditable coverage include the Federal Employee Health Benefits (FEHB) Program, Indian Health Service, TRICARE (military benefits), and Veterans Benefits. Many private insurance plans and even some Health Insurance Marketplace plans, like Obamacare plans, do not have creditable coverage. This is an important factor to consider when you decide you want a Part D plan.

Not having creditable coverage could cost you in late fees if you miss signing up for Part D during appropriate times.


A premium is a dollar amount you pay every month for your Part D plan. These premiums do not pay towards any of your medications but pay for the benefit of having prescription drug coverage. If you do not pay your premiums, you will be dropped from the plan and end up with no coverage at all.

Although each insurance company sets their own premium rates, the government sets a standard premium amount known as the national base beneficiary premium every year. In 2023, the proposed national base beneficiary premium is $34.71.

The national base beneficiary premium is not an arbitrary number. It is used to calculate how much you will pay in late fees, if they apply to you.


A deductible is the amount you pay out of pocket every year before you can use your prescription drug benefits. This cost is in addition to your monthly premiums.

The Centers for Medicare and Medicaid Services (CMS) has rules in place to protect Medicare beneficiaries. Every year, CMS sets the highest amount an insurance company can charge you for a Part D deductible. The amount is set at $505 for 2023.

Again, private insurance companies can set their own rates. Depending on what Part D plan you sign up for, you may have no deductible at all but you will pay no more than the rate set by the government.

Copayments vs. Coinsurance

Copayments (also referred to as copays) and coinsurance are what you actually pay for your prescription drugs after meeting your deductible (and some qualified plans don't have a deductible). A copayment is a fixed dollar amount you pay while a coinsurance is a fixed percentage, not to exceed 25%, you pay for a prescription. Most of the time you will pay copays for your prescriptions.

Copays and coinsurance may vary depending on what medications you take, costing less for generic medications and more for expensive brand name medications. Part D plans typically sort formulary drugs into different tiers. The lower the tier, the lower the cost to you.

There are no official rules in place for insurance companies to arrange their tiers. Some plans may have only three tiers, others as many as five or more.

Example of Simple Tier System Example of Expansive Tier System

1. Generic drugs

2. “Preferred” brand name drugs

3. “Non-preferred” brand name drugs

1. “Value” generic drugs

2. “Regular” generic drugs

3. “Preferred” brand name drugs

4. “Non-preferred” brand name drugs

5. Specialty drugs and injectables

Know that medications will increase in cost as you move to higher numbered tiers. Choosing medications in the lower tiers will keep your costs down. Another thing to keep in mind is that you cannot decrease how much you pay in copays and coinsurance by using manufacturer drug coupons. It is against the law, namely the Anti-Kickback Statute, to use a coupon from a pharmaceutical company while a federal program pays for that medication. In other words, you must choose between your Part D coverage or a drug coupon. You cannot use both.

Income-Related Monthly Adjustment Amount (IRMAA)

If you earn more than a certain amount every year, you will pay more for your Part D plan. Medicare, not the insurance company, charges you an extra fee every month known as the Part D income-related monthly adjustment amount (IRMAA). If you do not pay this extra amount to Medicare, your Part D plan will be canceled.

How Much You Will Pay for Part D IRMAA
Income on Individual Tax Return Income for Married Couples Filing a Joint Tax Return Income for Married Couples Filing Separately 2022 IRMAA
Less than or equal to $91,000 Less than or equal to $182,000 Less than or equal to $91,000 $0.00
Greater than $91,000 and less than or equal to $114,000 Greater than $182,000 and less than or equal to $228,000 N/A $12.40
Greater than $114,000 and less than or equal to $142,000 Greater than $228,000 and less than or equal to $284,000 N/A $32.10
Greater than $142,000 and less than or equal to $170,000 Greater than $284,000 and less than or equal to $340,000 N/A $51.70
Greater than $170,000 and less than or equal to $500,000 Greater than $340,000 and less than or equal to $750,000 Greater than $91,000 and less than or equal to $413,000 $71.30
Greater than $500,000 Greater than $750,000 Greater than $413,000 $77.90

Medicare uses your income taxes from two years ago to decide your IRMAA payments every year.

Late Penalties

You can sign up for Part D when you become eligible for Medicare. You should understand and know about these three important enrollment periods.

  • By age: When you turn 65 years old, your initial enrollment period for all Medicare parts starts three months before and ends three months after your 65th birthday.
  • By disability: When you are on disability, you are automatically enrolled in Parts A and B after your 25th month of Social Security Disability Insurance benefits. You have the three months before and three months after your 25th month to sign up for Part D.
  • By employer: When you work for a company that hires 20 full-time employees or the equivalent and have an employer-sponsored health plan through that company, you have eight months from the time you leave that job or that health plan, whichever comes first, to apply for Medicare and Part D.

When you miss one of these enrollment periods, you could end up paying late fees for Part D. This only applies if you do not have creditable drug coverage during the time you are eligible but are not enrolled in Part D. Medicare gives you only a little leeway. You have up to 63 days without creditable drug coverage before monthly late penalties will be charged.

How Late Fees Are Calculated

The late penalty is calculated as 1% of the national base beneficiary premium multiplied by the number of complete months you were without creditable drug coverage after you were eligible. It is rounded off to the nearest $0.10.

For example, if you missed your initial enrollment period and went without creditable drug coverage for six complete months, your late penalty would be calculated as follows: $34.71 (national base beneficiary premium for 2023) x 0.01 x 6 months = $2.10.

Because the national base beneficiary premium changes every year, the late penalty will change as well. The late penalty amount will change every year on January 1 and be added to your monthly premiums. The penalties continue as long as you have Part D with one exception. If your late penalties started before you met Medicare eligibility by age, they will stop when you turn 65.

The Donut Hole

When you hear the word donut, you may think of a tasty treat. When you look closer, you see that something is missing. There is a big empty hole in the middle.

Medicare Part D has a coverage gap known as the donut hole. After you and your Part D plan pay a certain amount of money, your prescription drug coverage drops off, leaving you to pay more out of pocket. This lapse in coverage is short-term but could get expensive depending on the medications you take.

Understanding Part D’s out of pocket expenses may help you to better manage your finances and perhaps avoid the donut hole altogether.

Understanding the Coverage Gap

Medicare’s Part D coverage is divided into three phases. Hopefully, you will never leave phase one since this is where you save the most money.

  1. Initial Coverage Limit
  2. The Donut Hole (Coverage Gap)
  3. Catastrophic coverage

The donut hole can be confusing if you do not know how the Part D coverage phase works. This overview will explain the rules and costs for each of these phases.

Initial Coverage Limit

The initial coverage limit is where you get most of your prescription drug coverage. In this phase, you will pay copays and coinsurance for your medications according to your Part D plan’s formulary and policies.

Your out-of-pocket expenses at this time will include monthly premiums, deductibles, copays, and coinsurance. Not all of these costs, however, will count towards your initial coverage limit. Premiums, which may be a large part of your monthly spending, do not count. Other costs that do not count are costs of medications purchased outside of the U.S. or medications not covered by your Part D formulary.

What your Part D plan pays towards your prescription drug coverage also counts towards the initial coverage amount. Your Part D plan will send you monthly summaries that review how much has been spent.

In 2022, the initial coverage limit lasted until you and your Medicare plan spent $4,430. This amount is based on the retail prices of the drugs, not necessary what you paid out of pocket. based on the retail prices. In 2023, that value increased to $4,660.

The larger the initial coverage limit, the better off you are. The annual increase is good news because it means more time will pass before the donut hole begins.

The Donut Hole

During the donut hole, your Part D plan’s copays and coinsurance are replaced by a one-size-fits-all payment plan.

During this time, you will pay a fixed percentage of the costs. With the donut hole closed in 2020, the amount is set at 25% for both brand-name and generic drugs.

Manufacturers of brand name drugs are required to give you a 70% discount on their products during the donut hole. There is no manufacturer discount given for generic medications.

The remainder of the costs are paid by your Part D plan.

For example, if a brand-name drug costs $100, you will pay $25, the manufacturer will pay $70 and your Part D plan will pay $5. For a generic drug, you will pay $25 and your plan will pay $75. Please note that generics rarely cost this much. These numbers were used to make it easier for you to understand how the math works.

Similar to the initial coverage limit, not all costs will count towards your donut hole spending. Premiums, costs of medications purchased outside of the United States, costs of non-formulary medications, and money spent by your Part D plan do not count. Money spent by the manufacturer, however, will be added to your out-of-pocket tally and will help you get you out of the donut hole sooner.

The out-of-pocket threshold increased to $7,400 in 2023 from $7,050 in 2022.

Catastrophic Coverage

After you have made it through the donut hole, you may feel that you have been through a catastrophe—or at least your wallet has. It is no surprise the government has come to name the next phase of Part D as “catastrophic coverage.”

The costs of copays and coinsurance during catastrophic coverage will not be the same as your initial coverage limit. Thankfully, they will be lower.

For 2022, you would either pay a 5% coinsurance for each prescription or copayments of $3.95 for generic drugs and $9.85 for brand name drugs. You were required to pay the option that costs you more. In 2023, however, you will no longer have to pay a coinsurance or a copay in the catastrophic phase. You can thank the Inflation Reduction Act for that.

Frequently Asked Questions

  • When did IRMAA start?

    The income-related monthly adjustment amount (IRMAA) for Part D was started as part of the Affordable Care Act in 2011. IRMAA for Part B was initiated with the Medicare Modernization Act of 2003 and took effect in 2007.

  • How can you avoid paying IRMAA?

    If you've had a life-changing event—such as the death of a spouse, divorce, or loss of pension—causing your income to go down, you can fill out an SSA-44 form. This form can help reduce your IRMAA, which is calculated using your adjusted gross income on your tax return from two years ago.

  • Do I have to enroll in Medicare Part D?

    Medicare Part D is optional coverage for everyone with Medicare. You don't have to get it when you're first eligible, but if you choose to join it later, you might pay a late enrollment penalty. If you have questions about which drug plan you should join, you can compare the plans on the Medicare website or call your State Health Insurance Assistance Program (SHIP) for free counseling.

16 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
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  2. Annual Release of Part D National Average Bid Amount and Other Part C & D Bid Information. Centers for Medicare & Medicaid Services.

  3. Announcement of Calendar Year (CY) 2023 Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies. Centers for Medicare & Medicaid Services.

  4. Announcement of Calendar Year (CY) 2020 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter. Centers for Medicare and Medicaid Services.

  5. Manufacturer Safeguards May Not Prevent Copayment Coupon Use For Part D Drugs. Office of Inspector General. US Department of Health and Human Services.

  6. How income affects your Medicare prescription drug coverage premiums. US Department of Health & Human Services.

  7. Your Guide to Medicare Prescription Drug Coverage. US Department of Health and Human Services.

  8. When will my coverage start? US Department of Health & Human Services.

  9. Joining a health or drug plan. US Department of Health & Human Services.

  10. Part D late enrollment penalty. US Department of Health & Human Services.

  11. 3 ways to avoid the Part D late enrollment penalty. US Department of Health & Human Services.

  12. Costs in the coverage gap. US Department of Health & Human Services.

  13. Copayment/coinsurance in drug plans. US Department of Health & Human Services.

  14. H.R.5376 - 117th Congress (2021-2022): Inflation Reduction Act of 2022.

  15. Social Security. Medicare Modernization Act.

  16. Centers for Medicare & Medicaid Services. Things to think about when you compare Medicare drug coverage.

By Tanya Feke, MD
Tanya Feke, MD, is a board-certified family physician, patient advocate and best-selling author of "Medicare Essentials: A Physician Insider Explains the Fine Print."