Understanding Medicare Part D: Prescription Drug Coverage Explained

Updated as of 2025.

Understanding your prescription drug coverage is an important step in enrolling in Medicare, because Medicare doesn’t automatically include it. So, it’s important to understand what your options are, how to find the right plan and when you can enroll to avoid potential penalties.

To determine what coverage you need, you should familiarize yourself with Medicare Part D — the term for prescription drug coverage available to Medicare beneficiaries — and everything it can offer you. This article provides an overview of the enrollment process, eligibility and what to look for when considering your options.

What is Medicare Part D?

Medicare Part D is a federal program providing prescription drug coverage. While the federal government oversees the program, like other parts of Medicare, federally approved plans can be purchased through a private insurer. Medicare Part D plans can stand alone or as part of a Medicare Advantage plan. The rules, requirements and coverage options can be complex, so understanding your eligibility and how coverage works is imperative.

Medicare Part D Eligibility

At the baseline, you become eligible for Medicare Part D when you turn 65 as long as you:

• Have a Medicare Part A (Hospital Insurance) or Part B (Medical Insurance)
• Live in a service area of the plan you want to join
• Are a U.S. citizen or lawfully present in the U.S.
• Complete an enrollment request during a valid election period.

If you meet the above requirements and have Medicare Part A and/or Medicare Part B, you can enroll in Medicare Part D. You can have either Original Medicare or Medicare Advantage and still get a Part D plan.

How to Enroll in Medicare Part D

There are six types of election periods where you can enroll in Medicare Part D, though most people will enroll during the Initial Enrollment Period, Annual Enrollment Period, Open Enrollment Period or Special Enrollment Period, depending on qualifications.

• Initial Enrollment Period for Part D (Part D IEP): The IEP for Medicare Part D is typically the same as IEP for Medicare Parts A and B. It’s a seven-month period surrounding your 65^th birthday, beginning three months before your birthday month, including the month of your birthday, and ending three months after. If you enroll in Part D within the first three months preceding your 65^th birthday, your coverage will begin the first day of your birth month. If you enroll after, your coverage will begin the month after your enrollment date.
• Annual Election Period (AEP): This is a yearly reenrollment period for people to renew their coverage. It starts on October 15 and ends on December 7. All changes become effective on January 1 of the following year. During AEP, you can switch from one Medicare Advantage plan to another, switch from one Part D plan to another, enroll in a stand-alone Part D plan if you don’t have one, and drop your Part D plan.
•  Medicare Advantage Open Enrollment Period (MA OEP): This period ranges from January 1 to March 31, or is within the first three months you get Medicare. You’re eligible to switch to another Medicare Advantage plan with or without Part D, join a separate Part D plan or drop Medicare Advantage and return to original Medicare.
• Special Election Periods (SEPs): These periods of time vary and are meant for certain life-changing situations. It could be moving to a new area that’s no longer serviced by your current plan, getting Medicaid or needing Extra Help to pay drug costs. During an SEP, you can join a Medicare Advantage Plan, with or without drug coverage, or a separate Part D plan. You can also switch to a different plan than the one you’re currently on.

There are two additional enrollment periods: one for those who delay Part B enrollment and another for those who are institutionalized.

• Initial Coverage Election Period (ICEP): This is when you can enroll in a Medicare Advantage Plan for the first time and normally it coincides with your Medicare IEP. However, the time and length of your ICEP depend on whether or not you delay your Part B enrollment. If you delay your Part B because you have creditable coverage past age 65, your ICEP begins 3 months before you enroll in Part B and ends the last day of the month before your Part B coverage starts.  
• Open Enrollment Period for Institutionalized Individuals (OEPI): This is coverage for people who are institutionalized, such as in a nursing home or psychiatric hospital. The election period begins the first day a patient is institutionalized and ends two months after the client is discharged from the facility.

It’s best to enroll in Part D when you become eligible to avoid penalties or lapses in coverage. In some cases, using AEP to enroll instead of when you initially become eligible at your 65th birthday can incur a penalty. The late enrollment penalty happens when your IEP lapses and you don’t have Part D coverage or other credible drug coverage for 63 days in a row.

The penalty must be paid as long as you have Medicare Drug Coverage and is based on multiplying 1% by “national base beneficiary premium” ($36.78 in 2025) by the number of full, uncovered months you were eligible to join a Part D plan and didn’t. The amount is rounded to the nearest $0.10 and added to your monthly Part D premium. The “national base beneficiary premium” may go up each year, so the penalty amount may increase as well. This is not a one-time penalty. If you get Extra Help, this penalty will not kick in, but it’s much simpler to just enroll in Part D as soon as you are able.

Medicare Part D Coverage and Costs 

Medicare Part D expenses include premiums, deductibles, coinsurance and copays.

Your premium is your monthly payment, which varies depending on the plan you choose, your income and if you have a Part D late enrollment penalty. Once you reach your deductible, coverage begins, and costs are split between you and the insurer. That’s what copays and coinsurance do.

Additionally, the costs of your prescriptions covered under Part D may vary throughout the year based on which coverage phase you are in. Medicare Part D phases are:

1. Deductible Period

You pay all out-of-pocket costs until you reach a full deductible. No Medicare deductible for a drug plan may be more than $590 in 2025. Some plans don’t include this phase because they don’t have a deductible.

2. Initial Coverage Period

After reaching your deductible — if your plan has one — you’ll pay 25% of the cost as coinsurance for generic and name-brand drugs, until your out-of-pocket spending on covered medications reaches $2,000. This includes payments made on your behalf, like the Extra Help program. Then, you’ll automatically get “catastrophic coverage.”

3. Catastrophic Coverage

You will no longer have to pay out-of-pocket for medicines covered under Part D for the rest of the calendar year.

Medicare drug coverage also operates in tiers, with higher tier drugs costing more than lower tiers. Always review your plan’s formulary so you know what to expect from your coverage. This will help you determine if a plan suits your needs.

Extra Help and Assistance Programs 

The Extra Help program provides assistance to low-income Medicare beneficiaries. It helps pay for Part D premiums, deductibles, coinsurance and other costs. It also eliminates the late enrollment penalty and can reduce your plan’s deductible. You automatically get Extra Help if you get:

• Full Medicaid coverage
• Help from your state paying your Part B premiums (from a Medicare Savings Program)
• Supplemental Security Income (SSI) payments from Social Security

Even if you don’t automatically qualify for Extra Help, you can still apply. To qualify you must have an income lower than $23,475 and resources under $17,600 as a single person or an income lower than $31,725 and resources under $35,130 as a married couple.

You can enroll in Extra Help and the Medicare Savings Programs (MSPs) at the same time. State Pharmaceutical Assistance Programs (SPAPs) can also help you reduce your drug costs. Navigating Medicare Part D can be difficult, but you can contact your local State Health Insurance Assistance Program (SHIP) for help applying and understanding your options.

Tips for Choosing a Part D Plan 

Always review a plan’s premium, deductible, copays and coinsurance, as well as other aspects of coverage like formularies and in-network pharmacies before choosing a plan. Depending on your finances, you may choose a plan with higher premiums but lower deductibles. Part D coverage is subject to change every year, so you should review and re-evaluate your current plan’s coverage when annual change notices arrive.

Questions? Reach out to a Baylor Scott & White Health Plan licensed insurance agent today to learn more about our options.