Medicare Part D Costs in 2024

Before 2006, Medicare did not cover prescription medications, at least not most of them. A limited number of medications were offered under Medicare Part B, but otherwise, you had to pay for your medications out-of-pocket.

That all changed when President George W. Bush passed the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) in 2003. The law created what we now know as Medicare Part D, an optional part of Medicare that provides prescription drug coverage.

Part D plans are run by private insurance companies, not the government. However, the federal government sets guidelines on what basic medications these plans must cover and on how much you can be charged.

This article outlines all you need to know about what you will pay for Medicare Part D this year.

Part D Deductibles

A deductible is the amount of money you spend out-of-pocket before your prescription drug benefits begin. Your plan may or may not have a deductible. The maximum deductible a plan can charge for 2024 is set at $545, an increase of $40 from 2023.

Part D Premiums

A premium is the amount of money you spend every month to have access to a health plan. The government sets no formal restrictions on premium rates, and prices may change every year. Plans with extended coverage will cost more than basic-coverage plans.

Part D National Base Beneficiary Premium

Do not confuse the national base beneficiary premium (NBBP) with your monthly premium. Although the rates could technically be the same, they rarely are.

The NBBP is a value used to calculate how much you owe in Part D penalties if you sign up late for benefits. The NBBP is set at $34.70 in 2024, a decrease from $32.74 in 2023.

Your best bet is to avoid Part D penalties altogether, so be sure to sign up for a Medicare Part D plan if you do not have other creditable coverage. Creditable coverage means that a drug plan is at least as good as a standard Part D plan. This can include Federal Employee Health Benefits (FEHB), Medicaid, TRICARE for Life, Veterans Affairs benefits, and some private plans. If you are eligible for Medicare, your insurer must notify you if their coverage is creditable.

Part D Income-Related Medicare Adjustments Amounts

The government also charges you extra for Part D coverage based on your income. This is known as the Income Related Monthly Adjustment Amount (IRMAA). You will pay monthly IRMAA to the federal government, as well as monthly premiums to the insurance company.

In 2018, IRMAA changed the categories of income so that more people would be required to pay a surcharge. In 2019, they added an extra income category. In 2020, they increased the income categories for inflation.

If you do not pay your IRMAA in a timely fashion, your Part D plan could be canceled. 

The Donut Hole

Medicare Part D is far from perfect. In fact, it has a big hole in it.

The so-called donut hole is a coverage gap that occurs after you and Medicare have spent a certain amount of money on your prescription medications. After that amount is spent, you are left to pay for your medications on your own until you spend enough to earn “catastrophic coverage” through your Part D plan.

The donut hole closed in 2020 thanks to the Affordable Care Act (aka Obamacare). Starting in 2013, regulations in the Affordable Care Act gradually decreased how much you would be forced to spend out-of-pocket on your medications.

Starting in 2020, you could not be charged more than 25% of the retail costs for your drugs. This is the maximum amount you pay in the initial coverage limit as well.

The amount that you pay for medications before you enter the donut hole, known as the initial coverage limit, is $5,030 for 2024.

Once you are in the donut hole, instead of paying your usual Part D copayment amount, you will pay 25% for all medications. The remaining costs will be paid by the pharmaceutical manufacturer and your Part D plan.

For example, if a brand name drug costs $100, you will pay $25, the manufacturer $50, and your drug plan $25. For a generic drug, you will pay $25 and your Part D plan will pay $75.

For all Part D plans up through 2023, after you had reached the out-of-pocket threshold (in 2023 this was $7,400 in out-of-pocket costs), you had to pay either a set price or 5% of the cost of your medicines, whichever was more. Thanks to the Inflation Reduction Act, you will no longer pay anything during the catastrophic phase of your Part D coverage (with an out-of-pocket threshold of $8,000) starting in 2024. In 2025, your out-of-pocket costs (excluding Part D premiums and Part D IRMAA) will be capped at $2,000.

Summary

Prescription medications can be costly, but don’t let that intimidate you. Know what your Medicare Part D plan covers and how much you can expect to pay. With this information in hand, you can budget for the year ahead and keep any surprises at bay.