Medicare Part D – Prescription Drugs in Medicare

Medicare covers prescription drugs in Part B and Medicare Part D (drug coverage).

Medicare Part D is voluntary, outpatient prescription drug coverage. Approximately 75 percent of Medicare beneficiaries are enrolled in Part D. Some beneficiaries with low incomes and assets are eligible for help with their Part D costs through the Medicare Low-Income Subsidy program.

Medicare Part B covers prescription drugs administered in a physician’s office or hospital outpatient department or associated with the use of durable medical equipment. Medicare Part B covers 80 percent of that cost. The beneficiary is responsible for the remaining 20 percent, some or all of which may be covered by supplemental coverage, with no out-of-pocket limit. Beneficiaries who lack supplemental coverage or use extremely costly drugs may face substantial cost-sharing for these medications.

Almost 56 million Medicare beneficiaries were enrolled in Part D plans in 2023: 20.7 million in stand-alone prescription drug plans (PDPs) and 26.7 million in Medicare Advantage plans with prescription drug coverage (MA-PDs). An additional 8.1 million had drug coverage through employer-sponsored plans that received Medicare’s retiree drug subsidy for being the primary provider.

In 2024, enrollees could choose from an average of 21 PDPs and 36 MA-PDs. However, in 2023, close to six in ten Part D enrollees were in plans sponsored by three insurers.

The Part D benefit structure will undergo additional changes as part of the Inflation Reduction Act of 2022. In 2024, enrollees were no longer responsible for 5 percent of their costs after they reach catastrophic coverage, with a full reform of the benefit structure in 2025 (see table below). The benefit now has an annual out-of-pocket spending limit ($2,000 in 2025), and the coverage gap will be eliminated. In addition, Medicare will be responsible for considerably less of enrollees’ prescription drug costs in catastrophic coverage, which has been a major driver of program spending in recent years. 

*Note: The new Medicare Part D out-of-pocket limit will increase annually based on Medicare Part D per capita spending along with the other parts of the benefit. In 2026 the limit will be $2100.

Source: The Centers for Medicare & Medicaid Services, Announcement of Calendar Year (CY) 2025 Medicare Advantage Capitation Rates and Part C and Part D Payment Policies, p. 121, April 1, 2024. Medicare Payment Advisory Committee, Report to the Congress: Medicare Payment Policy, Figure 11-1, March 2024.

While historical data from the Centers for Medicare &Medicaid Services (CMS) suggest that Part D premiums have been growing slowly or even decreasing, the average enrollment-weighted monthly premium for PDPs has increased considerably since the benefit was first offered in 2006. It is now more than $43 per month. In contrast, the average monthly premium for MA-PDs is currently $10 due to MA-PD plan sponsors’ ability to use rebates—added payments that MA plans receive when their bid to provide health benefits is lower than what CMS estimates it would be under Traditional Medicare—to lower or eliminate their Part D premiums. PDP plan sponsors do not receive rebates and cannot offer comparable premium reductions.

The Inflation Reduction Act constrains base beneficiary premium growth for the next several years, which is one component of the premiums paid by Part D enrollees. From 2024 through 2029, Medicare Part D base beneficiary premium increases will be capped at 6 percent annually. The head of the U.S. Department of Health and Human Services will also have an opportunity to slow base beneficiary premium growth in 2030 and beyond.

Notably, individual Part D plan premiums can grow faster than 6 percent annually and are expected to fluctuate considerably between 2024 and 2026 due to Inflation Reduction Act provisions that improve Medicare Part D coverage generosity before the program begins benefiting from provisions that will lower prescription drug prices. Thus far, PDP premiums have shown considerably more variation than MA-PD premiums. In response, the Centers for Medicare & Medicaid Services is conducting a three-year demonstration starting in 2025 that is intended to stabilize the PDP market and help moderate PDP premium increases.

Cost-sharing under Part D is growing. Most stand-alone prescription drug plans (PDPs) are shifting from flat-rate copayments to coinsurance. With coinsurance, beneficiaries pay a percentage of the drug’s price. Combined with rapidly escalating prescription drug prices, this trend will have beneficiaries paying considerably more at the pharmacy counter. PDP enrollees are more likely to face a mix of copayments and coinsurance for different formulary tiers, while MA-PD enrollees typically face copayments for all tiers except the specialty tier. Virtually all PDP enrollees are now in plans that use coinsurance on two or more of their formulary tiers.

The Inflation Reduction Act includes provisions to reduce some enrollees’ out-of-pocket costs. Starting in 2023, co-pays for Part D plan-covered insulins were capped at $35 per month, and Part D plans are required to offer this co-pay amount before the enrollee meets their deductible. In addition, starting in 2025, Part D plans must allow enrollees to spread their out-of-pocket costs over the course of the plan year.

This act also includes two provisions that will help address high prescription drug prices. Drug companies that increase the prices of their products faster than inflation must pay penalties that require them to pay the higher-than-inflation amount back to Medicare. This mechanism, which already exists under the Medicaid program, is expected to discourage drug companies from making substantial price increases.

In addition, the Inflation Reduction Act gives Medicare the authority to negotiate prices for certain high-cost prescription drugs. The U.S. Department of Health and Human Services will identify the 100 drugs Medicare spends the most on and choose a subset of drugs for price negotiation. The first Medicare negotiated prices were announced in 2024, and the new program will begin to provide the negotiated prices to enrollees for Part D drugs in 2026 and Part B drugs will be added in 2028. As many as 60 drugs could be selected and negotiated by 2029.

Many Part D plans have attempted to reduce prescription drug spending by using preferred pharmacy networks that offer lower cost-sharing. Among plans that have them in 2024, preferred pharmacies make up an average of 40 percent and 48 percent of all PDP and general MA–PD network pharmacies, respectively.

Plans may also attempt to control costs and enhance quality by establishing drug formularies and preferred drug lists. A growing number of covered prescription drugs are subject to utilization management such as prior authorization, step therapy, or quantity limits. In 2024, PDPs and MA-PDs applied some form of utilization management to more than 50 percent of the prescription drugs on their plan formulary. These requirements can present administrative burdens on clinicians and barriers to coverage for beneficiaries.

One component of Part D designed to help people use their prescription drugs safely and to minimize risk is medication therapy management (MTM). PDPs must offer MTM services to those whose annual drug costs exceed a statutory amount. The amount is updated annually. It is $1,623 in 2025. Plans are generally free to set eligibility criteria related to the number of drugs being used and to the number and type of chronic conditions as long as they meet certain guidelines from CMS. Those who accept their drug plan’s invitation for free MTM services can receive a comprehensive review of all their medications, a detailed medication list, and recommended steps to resolve any drug-related problems.

While MTM services are reserved for eligible beneficiaries, all Part D participants can use CMS quality measures to determine how their respective drug plans ensure safe medication use. Plans are rated on quality measures grouped into four areas: drug plan customer service; member complaints, problems getting services, and choice to leave the plan; member experience with drug plan; and drug pricing and patient safety.