Medicare Part D Explained: Coverage, Costs & Enrollment
Published on October 21, 2026
If you are leaning toward a Medigap plan, it is important to understand how prescription drug coverage works. Original Medicare helps cover hospital and medical services, and Medigap helps pay some of the out-of-pocket costs left behind by Medicare.
However, neither Original Medicare nor modern Medigap plans include routine outpatient prescription drug coverage. That is where Medicare Part D comes in. Most people who choose Medigap also enroll in a standalone Medicare Part D Prescription Drug Plan to help cover their medications.
In this guide, we will explain how Part D works, how to enroll, and how to compare prescription drug plans using Medicare.gov.
If you are leaning toward a Medigap plan, it is important to understand how prescription drug coverage works.
However, neither Original Medicare nor any Medigap policy sold since January 1, 2006 includes routine outpatient prescription drug coverage. That is where Medicare Part D comes in. Most people who choose Medigap, whether it is Plan G or Plan N, also enroll in a standalone Medicare Part D Prescription Drug Plan to help cover their medications.
In this guide, we will explain how Part D works, what changes in 2027, how to enroll, and how to compare prescription drug plans using Medicare.gov.
Medicare Prescription Drug Coverage
Medicare Part D is prescription drug coverage approved by Medicare and offered through private insurance companies.
Simple Definition
Part D helps cover prescription drugs you pick up at the pharmacy.
Part D covers outpatient prescriptions filled at a retail or mail-order pharmacy. Drugs you get as a hospital inpatient are generally covered under Part A, and most drugs given in a doctor’s office are covered under Part B.
Offered By
Private Insurance Companies
Part D plans are sold by private insurers but must follow Medicare rules.
Used With Medigap
Usually Standalone
Medigap users usually add a standalone Prescription Drug Plan, also called a PDP.
Availability
Available in Every State
Plan options, costs, formularies, and pharmacy networks can vary by location.
2027 Part D Numbers
Medicare sets these limits each year.
$2,400
Out-of-Pocket Cap
Once your qualifying out-of-pocket drug costs reach $2,400, you pay $0 for covered Part D drugs for the rest of 2027.
$700
Maximum Deductible
Plans can charge a lower deductible or none at all, but not more than $700.
$41.33
Base Beneficiary Premium
A national benchmark used to calculate the late enrollment penalty. It is not what your plan charges.
The cap is based on qualifying drug costs under Medicare’s True Out-of-Pocket (TrOOP) rules. Certain payments made on your behalf, including eligible assistance, may also count. Monthly premiums and drugs not covered under Part D generally do not. Sources:
CMS (base premium);
MedPAC (deductible and cap).
How Part D Works with Original Medicare and Medigap
If you choose Medigap, your Medicare coverage is usually built in separate pieces. Original Medicare covers hospital and medical care, Medigap helps with Medicare’s medical cost-sharing, and Part D helps cover retail prescription drugs.
The Three-Part Setup
Each piece solves a different part of your Medicare coverage.
Original Medicare
This is your foundation.
Part A and
Part B help cover hospital care, doctor visits, outpatient services, preventive care, and other Medicare-approved medical services.
Medigap
Medigap helps pay some of Medicare’s deductibles, copays, and coinsurance. Policies sold since 2006 cannot include retail prescription drug coverage.
Part D
A standalone Part D plan helps cover retail prescription drugs from the pharmacy. This is the drug coverage piece most Medigap users add separately.
Key Points
A few things to know about this setup.
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Medigap policies sold since January 1, 2006 cannot include drug coverage. Some older policies may still have it, so check your plan’s creditable coverage notice before skipping Part D.
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Many Medicare Advantage plans include drug coverage, but not all. If you choose one that does, this three-part setup does not apply. See
Medicare Advantage vs. Medigap.
Simple way to think about it: Think of your coverage like an assembly line: Original Medicare handles the medical foundation, Medigap helps with leftover medical costs, and Part D handles prescription drugs.
How Drug Coverage Works
Medicare Part D plans do not all cover prescriptions the same way. Each plan uses a formulary, drug tiers, pharmacy networks, and cost-sharing rules to determine whether a medication is covered and what you pay at the pharmacy.
The Four Main Components
A Part D plan checks four things before your final drug cost is determined.
Is the medication covered?
Every Part D plan has a formulary, which is the plan’s list of covered medications. Not all plans cover the same drugs, so a medication covered by one plan may not be covered in the same way by another.
What level is the drug placed in?
Covered medications are usually placed into tiers. Lower tiers often include lower-cost generics, while higher tiers may include brand-name or specialty medications.
Where are you filling it?
Part D plans often use pharmacy networks. Your costs may be lower at preferred pharmacies, higher at standard pharmacies, and different again through mail-order options.
What do you pay?
Your final cost can depend on the plan’s deductible, copay, coinsurance, the drug’s tier, and the pharmacy you use.
Drug Tier Example
Part D plans often organize covered drugs into tiers.
Tier 1
Preferred generics, usually among the lowest-cost medications.
Tier 2
Generics, often still lower-cost but may have a different copay than Tier 1.
Tier 3
Preferred brand-name drugs, which may cost more than generic medications.
Tier 4
Non-preferred brand-name drugs, often with higher cost-sharing.
Tier 5
Specialty medications, which are often among the highest-cost prescriptions.
This is only an example. Each plan can divide its tiers differently, so check where your drugs fall on each plan you compare.
Pharmacy Networks
The pharmacy you use can affect the price.
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Preferred pharmacies may offer lower costs.
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Standard pharmacies may still be in-network but cost more.
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Some plans may also offer mail-order options.
Cost Sharing
Your cost depends on how the plan shares the bill.
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A deductible may apply before the plan pays for certain medications.
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Copays are fixed dollar amounts for covered prescriptions.
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Coinsurance means you pay a percentage of the drug’s cost.
Coverage Rules and Exceptions
Even a covered drug can come with conditions.
Prior Authorization
You or your prescriber must get the plan’s approval before it covers the drug.
Step Therapy
You may need to try a lower-cost drug first before the plan covers a more expensive one.
Quantity Limits
The plan may limit how much of a drug it covers over a set period.
What if your drug is not covered?
Ask your prescriber whether a covered drug on the plan’s formulary would work for you. If not, you or your prescriber can request an exception to cover the drug or waive a rule. If the plan says no, you can appeal that decision. See Medicare’s guide to
drug plan rules and exceptions.
Example: Filling a prescription with Part D. Suppose you take a generic blood pressure medication and join a plan with a $20 monthly premium. The plan lists your drug as a Tier 1 generic with a $3 copay at preferred pharmacies, and its deductible does not apply to Tier 1.
You would pay the $20 premium each month and generally $3 each time you fill the prescription at a preferred pharmacy. At a standard pharmacy, the copay could be higher.
These amounts are hypothetical, not actual 2027 plan benefits.
Choosing a Part D Plan
It is natural to compare Part D plans by monthly premium, but the lowest-premium plan is not always the lowest-cost plan overall. Drug coverage, pharmacy pricing, deductibles, copays, coinsurance, and plan restrictions can all affect what you actually pay during the year.
Common Mistake
Many people only look at the monthly premium.
A plan with an $8 monthly premium may look better than a plan with a $25 monthly premium at first. But if the cheaper plan has higher drug costs, a less favorable pharmacy network, a deductible that applies to your medications, or restrictions like prior authorization, it may cost more by the end of the year.
What Many People Look At
Monthly premium only
$8/mo
A low premium can be attractive, but it only tells you what the plan costs to own. It does not tell you what your prescriptions will cost to use.
What You Should Compare
Total annual cost
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Whether your medications are covered
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The cost at your preferred pharmacy
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Restrictions like prior authorization, step therapy, or quantity limits
Example Scenario
The plan with the higher premium may still cost less overall.
Plan A
$8/month premium
Annual premium$96
Estimated drug costs$780
Estimated yearly total$876
Plan B
$25/month premium
Annual premium$300
Estimated drug costs$360
Estimated yearly total$660
Annual Cost Comparison
Plan A: Lower premium, higher drug costs$876/year
Plan B: Higher premium, lower drug costs$660/year
In this example, the $25/month plan costs more upfront but saves about $216 per year because the prescription costs are lower.
This example is for illustration only. Actual costs depend on your medications, pharmacy, dosage, plan formulary, deductible, copays, coinsurance, and any plan restrictions.
Simple way to think about it: The best Part D plan is not always the one with the lowest premium. It is usually the plan with the best total cost for your specific prescriptions and pharmacy.
Enrollment Timing
Most people enroll in Part D when they first become eligible for Medicare. After that, there are certain times each year or special situations when you may be able to join, switch, or change your prescription drug coverage.
Main Enrollment Windows
There are three common times when someone may enroll in or change a Part D plan.
Initial Enrollment Period
This is the first time most people can enroll in Medicare drug coverage. For most people turning 65, it is a 7-month window that starts 3 months before your birthday month and ends 3 months after it. Our guide to
Medicare enrollment periods walks through the timing.
Best practice: If you do not have other creditable prescription drug coverage, such as qualifying coverage from an employer or union, this is usually when you should enroll in a Part D plan.
Still working after 65? If you have prescription drug coverage through an employer or union, ask whether it is creditable for Medicare Part D, and keep your annual creditable coverage notices. You may be able to delay Part D without a penalty, but your enrollment rights depend on your circumstances. See
how to sign up for Medicare.
Annual Enrollment Period
The Annual Enrollment Period runs from October 15 through December 7. During this time, you can review your drug coverage and switch to a different Part D plan. Changes take effect January 1.
Why review annually: Premiums, formularies, drug tiers, pharmacy networks, and copays can change from one year to the next. Your plan mails an Annual Notice of Change each fall. You
do not have to re-enroll every year, but your plan can still change.
Special Enrollment Periods
Certain qualifying life events may create a Special Enrollment Period. These can include moving out of your plan’s service area, losing other creditable drug coverage, or qualifying for Extra Help.
Important: Special Enrollment Period rules depend on the situation, so timing matters. If you lose employer drug coverage, act quickly to avoid a gap of 63 days or more.
Late Enrollment Penalty
Delaying Part D can make your drug coverage more expensive later.
According to Medicare.gov, you may owe a late enrollment penalty if, at any time after your Initial Enrollment Period ends, you go 63 or more days in a row without Part D or other creditable prescription drug coverage. If a penalty applies, Medicare generally calculates it using the number of full months you were eligible for Part D but lacked qualifying coverage.
In most cases, the penalty stays with you for as long as you have Medicare drug coverage. People who get Extra Help do not pay it.
How the Penalty Is Calculated
1%
of the national base beneficiary premium
×
Months
full uncovered months without creditable drug coverage
=
Penalty
added to your monthly Part D premium
2027 example: If you went 14 full months without Part D or creditable coverage, your penalty would be 14% of $41.33, or $5.79, rounded to $5.80 per month, on top of your plan’s premium.
Medicare calculates the penalty using the national base beneficiary premium, which can change each year. The penalty is rounded to the nearest $0.10 and added to your monthly premium.
Part D Enrollment
Once you compare Part D plans and find one that fits your prescriptions and pharmacy preferences, there are a few ways to enroll. You can enroll through Medicare.gov, directly through the insurance company, or with help from a licensed Medicare broker.
Three Enrollment Options
Choose the enrollment method that feels easiest for you.
Enroll Through Medicare.gov
Medicare’s Plan Finder lets you compare available Part D plans, enter your prescriptions, choose pharmacies, review estimated costs, and enroll online once you select a plan. You can also call 1-800-MEDICARE.
Enroll Directly with the Insurance Company
You can also enroll through the insurance company offering the Part D plan. This may be done online, over the phone, or with a paper application, depending on the carrier.
Work with a Licensed Medicare Broker
A licensed Medicare broker, like
Policy Guide, can help you compare Part D plans, review your prescriptions, check pharmacy costs, and walk you through enrollment.
Using Medicare’s Plan Finder
How to compare Part D plans on Medicare.gov.
2
Add Every Prescription
Enter each drug with its exact dosage, quantity, and how often you refill it. A missing or wrong dosage can make the cost estimate inaccurate.
3
Choose Your Pharmacies
Select the pharmacies you actually use, plus mail order if you are open to it, so the estimates reflect real pricing.
4
Compare Estimated Annual Cost
Compare each plan’s estimated annual premium and prescription costs. Review pharmacy pricing, deductibles, drug restrictions, and the plan’s formulary before enrolling.
What You’ll Need
Have these items ready before you enroll.
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Medicare Card
You may need information from your Medicare card, including your Medicare number and Part A or Part B effective dates.
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Prescription List
Include each medication name, dosage, quantity, and how often you refill it so your plan comparison is accurate.
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Pharmacy Preferences
Know which local pharmacies you prefer and whether you are open to mail-order options, since costs can vary by pharmacy.
On a limited income? Medicare’s Extra Help program can lower Part D premiums, deductibles, and copays. Eligibility is based on your income and resources, and the amount of help depends on the program’s rules. You can apply through Social Security before or after you enroll in Part D.
Quick Answers
Tap a question to see the answer.
Do I need Part D if I currently take no medications?+
Usually, yes. The exception is if you have other creditable drug coverage, such as from an employer, union, TRICARE, or the VA.
If you go 63 or more days in a row without Part D or creditable coverage after your Initial Enrollment Period, you may pay a late enrollment penalty for as long as you have Medicare drug coverage.
A low-premium plan can be a practical way to stay covered.
Can I change Part D plans later?+
Yes. You can switch during the Annual Enrollment Period, October 15 through December 7. Your new plan starts January 1.
Outside that window, you generally need a Special Enrollment Period, such as moving out of your plan’s service area or losing other creditable coverage.
Can my drug plan change each year?+
Yes. Premiums, deductibles, formularies, drug tiers, and pharmacy networks can all change on January 1.
Your plan mails an Annual Notice of Change each fall. Review it before December 7.
Does Medigap include prescription coverage?+
Not policies sold today. Medigap policies sold since January 1, 2006 cannot include prescription drug coverage.
If you want Medicare drug coverage alongside one of these policies, you generally enroll in a separate Part D plan. Some older Medigap policies may still include drug benefits.
Can I have both Medigap and a standalone Part D plan?+
Yes. Original Medicare plus a Medigap plan plus a standalone Part D plan is the most common setup for Medigap beneficiaries.
Is there a limit on what I pay for prescriptions in 2027?+
Yes. Once your qualifying out-of-pocket drug costs reach $2,400 in 2027, you pay $0 for covered Part D drugs for the rest of the year.
What if my drug costs are high early in the year?+
You can join the Medicare Prescription Payment Plan through your Part D plan. It spreads your out-of-pocket drug costs into monthly payments across the year.
It does not lower your total costs, but it can make large bills early in the year easier to manage.
What to Remember
If you choose a Medigap plan, your prescription drug coverage is usually handled separately through a standalone Part D plan.
1
Part D plans are not one-size-fits-all
Compare plans by estimated annual cost for your own prescriptions and pharmacy, not by monthly premium alone.
2
Use Medicare’s Plan Finder
Enter your prescriptions, dosages, and pharmacies to see how each plan may work for your situation.
3
Review your plan every fall
Premiums, formularies, drug tiers, and pharmacy networks can change each year, so check before December 7.
Want help comparing Medigap and Part D?
A licensed Medicare advisor can review your coverage, estimate your prescription costs, and make sure your setup fits your needs.
Talk to a Licensed Advisor
