Here's What Medicare Part D Costs and Covers in 2021

Millions of Americans rely on Medicare for their healthcare in retirement. One of the newer elements of the Medicare program is prescription drug coverage, added under what's known as Medicare Part D. Part D coverage is an optional add-on that participants can use regardless of whether they have traditional Medicare coverage under Parts A and B or they choose to take part in a Medicare Advantage plan.

Every year, the rules governing Medicare Part D prescription drug plans change slightly. We'll take a look at those rule changes more closely below, along with a broader perspective on the coverage that the program offers.

Prescription drug coverage and Medicare Part D

Part D is part of Medicare, but it doesn't work the same way that some other parts of the program do. In particular, participants in Medicare Parts D can't ask the government to take care of all of their care needs. Instead, private insurance companies come out with Part D prescription drug plans of their own, and it's up to participants to choose the plan that fits best with their individual needs.

Image source: Getty Images.

There is some uniformity across all Part D plans. Medicare requires that all insurers cover drugs in certain protected classes, including prescriptions necessary for fighting various forms of cancer, as well as vaccines to fight diseases like shingles.

However, each drug plan has subtle differences in how much they cover and which prescriptions are included. It's therefore critical to shop across plans, especially if you have current prescription drug needs. Plans typically have to offer the same drugs throughout the plan year, but they reserve the right under some circumstances to discontinue offering drugs in future years -- forcing those who need those drugs to switch plans for ongoing coverage.

Costs of Medicare Part D

Part D comes with highly variable costs. Less expensive plans often omit certain drugs from their coverage, while more expensive plans typically offer more comprehensive selections of prescriptions. Plans are also allowed to have different copayments and to treat various types of drugs differently, such as charging less for generic versions of drugs than for name-brand pharmaceuticals.

With those coverage differences in mind, some Part D plans don't charge a monthly premium at all. Others can be quite expensive. Remember, though, that what's important is total out-of-pocket cost, which includes not only monthly premiums but also what's left for you to pay on drugs you need.

If your income is above certain limits, then you'll have to pay a surcharge for Part D plan coverage. The figures below apply to whatever your income was two years before now, or 2019 for premiums paid in 2021:

Data source: Medicare. Note: Married persons filing separately who lived together at any time during the year pay $70.70 if their income is $88,000 to $412,000, or $77.10 if their income is more than $412,000.

Finally, there are some other costs to consider:

• Some Part D plans charge deductibles, and the annual limit on that amount in 2021 will go up by $10 to $445. However, a plan can charge a smaller deductible, or no deductible at all.
• There are limits on how much you'll have to pay for drugs. Once you and the plan pay a combined $4,130 on prescription drug costs, you won't pay any more than 25% of the cost of prescription drugs.
• At $6,550 of out-of-pocket spending, you'll reach the catastrophic coverage level. At that point, only small copayments or coinsurance amounts apply.

Be smart about your Medicare drug coverage

Prescription drugs play a vital role in keeping people healthy, but paying for them in your retirement years  can be challenging. Medicare Part D offers a valuable way to control healthcare costs, but it's important to know the ins and outs of the program to make sure that you get everything you can out of it.