Medicare Part D uses private insurance companies to administer and cover drug costs. They negotiate costs for drugs in their formulary with manufacturers and pharmacies. Their formularies must have two drugs in each designated category and all drugs in protected categories. Other than that, each plan is unique and changes annually.

You pay premiums to insurance companies directly and any copays directly to the pharmacy.

1. Premiums are set by the insurance company. It is also income adjusted, based on your IRS tax return 2 years prior.

2. Late enrollment penalties can add 1% for each uncovered month (12%/year) and continues for the rest of your life. If you have “creditable” drug coverage from other insurance, you can coordinate them to avoid penalties.

3. Deductibles can vary, but the maximum for 2023 is $505.

4. Copays and coinsurance are highly variable, based on the drugs you use, and can change during the year.

5. Coinsurance is up to 25% of drug costs in the coverage gap. (Between $4,660 and $7,400 in 2023). In the catastrophic stage, coinsurance drops to the greater of 5%, or a low flat price for generics and brand drugs).

It is important to review the plans annually, at least until 2025, particularly if you use a specific formulation of a drug or an expensive drug. Medicare provides data and tools to compare and find the best combination(s) of formulary prices and pharmacies for you.

In 2022 the Inflation Reduction Act started a rationalization and stabilization of Part D. The process rolls out from 2023 to 2031.

a) 2023 Additional vaccines at no cost, insulin costs capped at $35/month

b) 2024 Catastrophic phase at no patient costs.

c) 2025 Part D cost capped at $2,000 annually.

d) 2026 – 2029 60 negotiated drug prices go into effect.