Paying for Drugs in Medicare Part D Under Current Law and Under Proposals to Redesign the Program
In 2020, about three-fourths of Medicare beneficiaries were enrolled in Part D, the optional prescription drug benefit. They obtain coverage from private insurers, either through a stand-alone drug plan or through a Medicare Advantage plan.
Part D is Medicare’s optional prescription drug benefit. Medicare beneficiaries obtain coverage from private insurers, either through a stand-alone drug plan or through a Medicare Advantage plan.
In 2020, about 47 million Medicare beneficiaries (or 75 percent) were enrolled in Part D. Roughly 13 million of them receive a low-income subsidy that pays most or all of their premium and cost-sharing requirements; as a result, those enrollees face only limited costs. The base Part D premium is about $33 per month.
Part D plans receive a fixed payment per enrollee from the federal government and bear financial risk for part of enrollees’ drug costs, so plan administrators have an incentive to control costs by managing drug utilization and negotiating lower prices.
When enrollees reach a high level of spending known as the catastrophic threshold, the federal government reimburses plans for 80 percent of spending above that limit, which reduces plans’ incentives to control costs.