Health care costs are a big expense in retirement — and prescription drugs often top the list.
About 5.8 million Medicare beneficiaries struggled to afford essential prescription drugs in 2019, according to a 2022 report from the U.S. Department of Health and Human Services.
Early retirees can utilize prescription discount cards and apps like GoodRx to save money on medications.
But most of these programs can’t be combined with Medicare drug plans, leaving many retirees searching for ways to cut costs.
In this guide, we’ll break down how the Medicare Part D program works, average costs and how to compare prescription drug plans to make sure you’re getting the best deal.
We’ll also discuss assistance programs that can cut your out-of-pocket drug costs, as well as a nonprofit organization that can help you find the right Part D coverage for you.
What Is Medicare Part D?
Medicare Part D is a voluntary prescription drug program, administered through private insurance companies approved by the federal government.
Medicare beneficiaries can choose to get Part D coverage in one of two ways:
A standalone Part D plan that supplements Original Medicare (Part A and Part B).
A Medicare Advantage plan (Part C) that bundles all benefits together, including prescription drug coverage.
You generally can’t combine Medicare Advantage plans with a standalone Medicare Part D plan. Either you’re enrolled in Original Medicare with a standalone Part D plan or you’re enrolled in an “all-in-one” Medicare Advantage plan with built-in Part D coverage.
If you’re in the market for a new Part D plan, there are many to choose from.
In 2022, there are over 760 stand-alone Medicare Part D plans, according to the Kaiser Family Foundation, a nonprofit organization focused on health care policy.
There’s also hundreds of Medicare Advantage plans with prescription drug coverage available at the local level.
How Much Does Medicare Prescription Drug Coverage Cost?
The total cost of Medicare drug coverage includes your premium, deductible and the out-of-pocket costs you pay at the pharmacy.
It’s important to consider all of these expenses when picking the best coverage for your budget:
Premium: The amount you pay each month for the drug plan.
Deductible: The amount you pay out of pocket each year before your insurance plan starts paying its share for covered drugs.
Drug costs: Medicare Part D insurers often change which drugs are covered and the coverage amount every year.
Your Medicare prescription drug costs will also be higher if you enroll late, have an extended gap in drug coverage or have a high taxable income.
You can switch Part D or Medicare Advantage plans during Medicare’s open enrollment period, which runs from Oct. 15 to Dec. 7 each year. Changes go into effect the following Jan. 1.
Plan Costs: Premiums and Deductibles
The average basic monthly premium for Part D coverage is projected to be about $31.50 in 2023, according to the Centers for Medicare & Medicaid Services (CMS).
Meanwhile, the standard Part D deductible is $480 in 2022, though some plans have lower deductibles, according to the Kaiser Family Foundation.
Generally, plans with lower premiums have higher deductibles.
If you don’t regularly take prescriptions, you can look at plans with low or no monthly premiums. These plans typically come with high deductibles.
Because Part D coverage is administered through private insurance companies, the exact drugs covered vary by plan. So can the copayment — or the amount you pay out of pocket — for each covered drug.
Medicare Part D plans also have preferred pharmacies. If you go to an out-of-network pharmacy, you’ll pay more for your medications.
When you’re searching for the right Part D plan, remember:
No plan covers every drug.
The same drug may cost more or less, depending on the plan.
Premiums, deductibles and copays can change from year to year.
What Is a Formulary?
A formulary is basically a drug list of covered medications.
Private insurance companies regularly tweak their formularies, often at least once a year. That’s why it’s so important to review your Medicare Part D coverage each year.
Medicare formularies typically group medications into different tiers based mostly on cost. A plan’s formulary usually has three to five tiers.
Generally, the lowest-tier drugs are the cheapest. Generic medications fall into the first tier.
The highest-tier drugs are usually specialty brand name medications. These drugs carry the highest out-of-pocket cost.
Examine each Medicare Part D plan’s formulary to make sure the drugs you need are listed.
How to Research and Compare Plans With the Medicare Plan Finder Tool
The best way to find a drug plan that fits your needs is to use Medicare.gov’s Plan Finder Tool.
This interactive tool helps you compare costs and coverage among stand-alone Medicare Part D and Medicare Advantage plans in your area side by side.
You can get a customized estimate of your monthly costs based on the medications you take and the pharmacies you use.
Here’s how it works.
Step 1: Go to medicare.gov/plan-compare and either login to your Medicare account or continue as a guest.
Step 2: Enter your zip code and the type of coverage you’re interested in. (You can choose from stand-alone Part D plans, Medicare Advantage plans or supplemental insurance Medigap policies.)
Step 3: Select other coverage you may have, such as Medicaid or Social Security Income (SSI) benefits.
Step 4: Next, you can add your prescription drugs and up to five preferred pharmacies for personalized cost information. Make sure to have the name, dosage, quantity and frequency of each drug you use on a regular basis ready.
Step 5: Once you’ve entered this information, you can narrow your search results. You can filter plans by insurance carrier and star rating. Plans with the lowest monthly premium + drug costs will appear first.
Step 6: You can select up to three plans on the results page to get a side-by-side comparison of plan details, including your estimated monthly premium, deductible and copayments or coinsurance for each drug.
Logging in or creating a Medicare account is the most convenient way to use the Medicare Plan Finder Tool.
You can save your prescription drug list and preferred pharmacies to your account so you can easily compare plans later. Plus, you can get details about the plan you’re currently enrolled in.
CMS has this helpful step-by-step video on how to use the online Medicare Plan Finder Tool.
5 Ways to Get Help Paying for Prescriptions
Even if you find a great plan, you may still struggle to afford your prescriptions or monthly premiums.
Here are five ways you can potentially lower your Medicare drug costs.
1. Extra Help
The Social Security Administration oversees a prescription drug assistance program called Extra Help for Medicare beneficiaries with limited incomes and resources.
This federal program helps pay your Medicare prescription drug plan premiums, annual deductibles and copayments.
Extra Help can significantly reduce your out-of-pocket drug costs. It’s estimated to save enrollees about $5,100 per year.
If you qualify and enroll in Extra Help, you’re guaranteed not to pay more than $3.95 for each generic drug or $9.85 for each covered brand-name drug.
You can complete the Extra Help application online or by calling the Social Security Administration at 1-800-772-1213.
2. Patient Assistance Programs
Patient assistance programs can offer free or discounted medications to those who qualify. These programs are administered by pharmaceutical companies.
Eligibility for each program is based on several factors including your income level, medical insurance status and location.
Medicare has a convenient tool you can use to find pharmaceutical assistance programs.
Simply enter a medication, and available programs will appear in the search results, along with program details and contact information for the manufacturer.
If you take pricey name brand drugs, it’s also worth contacting the drug company to see if they offer any manufacturer rebates or coupons for your medications.
3. Save Money on Insulin
The Part D Senior Savings Model is a collection of Medicare plans that offer copays of $35 or less for a 30-day supply of insulin purchased at in-network pharmacies.
The low-cost insulin program launched in early 2021 and over 2,150 Part D plans now participate.
When the program launched, beneficiaries could identify participating Part D plans by selecting an “insulin savings” filter on the Medicare Plan Finder Tool.
Unfortunately, the filter was removed in 2022, which makes it more difficult to understand exactly which plans are participating. For detailed enrollment information, check out this guide from the Association of Diabetes Care & Education Specialists.
GoodRx, a popular app that helps people save money on prescriptions, can’t be used in combination with Medicare.
However, you can use GoodRx as an alternative to Medicare. This could help you save money on your prescriptions in certain situations.
It can make sense to use GoodRx instead of Medicare if:
Your medication isn’t covered by Medicare.
GoodRx prices are lower than your Medicare copay.
You won’t reach your annual deductible this year.
If you decide to use GoodRx instead of Medicare, tell the pharmacist to run the order as a self-pay or cash transaction. Then present the GoodRx coupon on your phone to receive the discount.
5. State Prescription Assistance Programs
Some states offer prescription assistance programs that Medicare beneficiaries can sign up for.
To see if your state offers a drug assistance program, use this search feature on Medicare’s website.
Keep in mind these programs are often limited. When we checked, most states only offer one or two programs. Nearly all programs have eligibility restrictions, and discounts are generally only available at a limited number of participating pharmacies.
Where Can I Get Help Picking a Part D Plan?
Finding the best Medicare Part D plan for your budget can be time consuming and confusing. If you need assistance applying for a plan or comparing your options, there are nonprofit volunteers who can help.
The State Health Insurance Assistance Program (SHIP) is a network of trained nonprofit volunteers who provide 1-on-1 counseling about Medicare to beneficiaries and their families.
All SHIP advice and counseling is completely free. The program is federally funded and isn’t connected to insurance companies or health plans, so the advice you receive is unbiased.
These volunteers can help you find a Part D plan using the Medicare Plan Finder Tool, see if you qualify for money-saving programs and answer any questions you encounter along the way.
To get started, call your state’s SHIP information line. Click “SHIP locator” on the organization’s home page for a list of each state’s phone number.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.