How Medicare Part D Drug Plans Work in 2024
This is an update to my post How Medicare Part D Drug Plans Work in 2023. There are many changes for 2024 largely due to the Inflation Reduction Act of 2022. Here's what to expect of your Part D drug plan in 2024.
What is Medicare Part D and Do I Have It?
Medicare Part D is a voluntary outpatient prescription drug benefit for people with Medicare provided through private plans from carriers that contract with the federal government. "Outpatient prescription drug" simply means the prescriptions you pick up at the pharmacy. (Other drugs, for example, drugs administered in a medical office or setting, are covered under Medicare Part B, not Part D.) If you are on Original Medicare (Part A & Part B) with a Medicare Supplement, you likely have a stand-alone Part D prescription drug plan (PDP) for which you pay a separate premium and have a separate member ID card. If you are on a Medicare Advantage plan (aka, Part C, and which replaces Original Medicare) then your PDP is likely part of the Medicare Advantage plan (or MAPD, for Medicare Advantage Prescription Drug plan).
The entire list of drugs covered by a PDP is called the formulary. Each drug in the formulary is assigned to a cost tier which determines what you will pay for a drug. Typically, there are five cost tiers, 1 through 5, with most generics assigned to cost tiers 1 or 2 and brand name and specialty drugs assigned to tiers 3 through 5.
Some may not have a PDP at all because they have other prescription drug coverage Medicare considers to be "creditable", meaning that it is at least as comprehensive as a Part D PDP. The most common examples would be Veterans Administration (VA) coverage or Tricare for Life. Many veterans get their drugs through their VA coverage and do not need to be enrolled in a Part D PDP.
Drug Coverage Under Medicare is Not Like Drug Coverage in Under-65 Health Plans
Until you transitioned your health care to Medicare, you were likely covered by employer group health (EGH) or Affordable Care Act (ACA, aka, Obamacare) coverage via the healthcare.gov health insurance marketplace. Under those plans, if the co-pay for a medication is $10 in January, it is still $10 in June and again in December. That IS NOT how Medicare drug plans work. Instead, PDPs introduce what are called "stages of coverage" as illustrated in the lead graphic for this post.
Stages of Coverage
The important thing to remember here is that, as you and the plan spend money on your prescription drugs, the plan is keeping track of those costs, referred to as true -out-of-pocket costs (TrOOP). TrOOP is what triggers the different stages of coverage. (For details about what does and does not count toward TrOOP, see this document from CMS.) If the TrOOP reaches a stage-triggering threshold, you move into the next stage of drug coverage, and the cost of your drugs to you changes. The stages are:
Deductible stage. For 2024, the maximum deductible is $545 but your deductible may be less depending on how your plan is structured. Most stand-alone PDPs use the maximum deductible; most MAPDs have a much lower or no deductible. On many plans, the deductible does not apply to tier 1 and tier 2 drugs, so unless you're taking name brand drugs, you are shielded from the deductible.
Initial coverage stage. You stay in the initial coverage stage until your TrOOP reaches $5,030 in 2024. Somewhere around 95% of Medicare beneficiaries will never leave the initial stage of coverage. In this stage, you are paying usually very reasonable co-pays for lower tier drugs.
Coverage gap stage. Once TrOOP reaches $5,030 in 2024, you leave the initial coverage stage and enter the coverage gap (aka, donut hole). Somewhere around 5% of Medicare beneficiaries reach this stage every year. In this stage, you pay 25% of the cost of your drugs, the plan pays 5% and the remaining 70% is discounted by the manufacturer. Both the amount you pay and the manufacturer discounts count towards TrOOP. This is the stage where people tend to get sticker shock when picking up their drugs at the pharmacy counter. You stay in the coverage gap stage until TrOOP reaches $8,000 in 2024.
Catastrophic stage. Once TrOOP reaches $8,000 in 2024 you enter the catastrophic stage of coverage. In this stage, you pay nothing for your drugs. The plan pays 100% of the cost of your drugs in this stage.
More About the Inflation Reduction Act of 2022
For more information about how the Inflation Reduction Act of 2022 affects your Medicare drug costs, see my post: What Does the Inflation Reduction Act of 2022 Mean to You?
Want More Details?
If you're the type that likes to get into details, then this KFF article is definitely for you: Changes to Medicare Part D in 2024 and 2025 Under the Inflation Reduction Act and How Enrollees Will Benefit