Congress created Part D in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173 ), effective January 1, 2006. The law also made Part D the primary source of drug coverage for individuals covered under both Medicare and Medicaid (so-called dual eligibles). Part D coverage is provided through private insurance plans (PDPs) that offer only drug coverage, or through Medicare Advantage (MA) plans (MA-PDs) that offer drug coverage as part of a broader, Medicare Part C managed care benefit. All Part D plans must meet certain minimum requirements, though there are significant variations among plans in terms of benefit design including differences in premiums, drug formularies (i.e., lists of covered drugs), and cost sharing for particular drugs. Of the 58.6 million Medicare beneficiaries in 2017 who were eligible for Part D, 42.5 million (72.5%) were enrolled in a Part D plan and another 1.6 million (2.7%) had prescription drug coverage through a former employer that received a Part D subsidy for a portion of their coverage. Of the remaining 25% of Medicare beneficiaries, about half had drug coverage as generous as Part D through another source, such as the Federal Employees Health Benefits program, TRICARE, or private coverage. Eligibility for Low-Income Assistance

Beneficiaries with limited incomes and resources may qualify for assistance with their Part D premiums, cost sharing, and other out-of-pocket expenses. This group includes all other persons who (1) are enrolled in a PDP plan or MA-PD plan; (2) have incomes below 150% of the federal poverty level, $18,210 for an individual and $24,690 for a couple in 2018; and (3) have assets below $12,600 for an individual and $25,150 for a couple in 2018 (increased in future years by the percentage increase in the CPI). Beneficiaries already enrolled in a Part D plan may change their plans during the annual open enrollment period. Generally, sponsors make changes to plan benefits effective at the beginning of each calendar year. Some dual-eligible beneficiaries may find that they have been auto-enrolled in a plan that may not best meet their needs. This minimum set, referred to as "qualified prescription drug coverage," may include either a standard package of prescription drug coverage established by Medicare or an alternative package that is actuarially equivalent. The drug coverage can be either basic coverage or enhanced coverage. To qualify, an employer or union must offer drug benefits that are actuarially equivalent to, or more generous than, standard Part D prescription drug coverage. In addition, Medicare pays most of the cost sharing and premiums for LIS beneficiaries enrolled in PDP or MA-PD plans. (The national average monthly bid is $57.93 for plan year 2018.) As noted, premiums for the Part D program are generally set at an amount equal to 25.5% of standard benefit costs; however, as recipients of the Part D low-income subsidies are not required to pay premiums and premiums are based only on standard benefits (i.e., the premium calculation does not include such things as costs associated with the low-income subsidy and risk-corridor payments), premiums made up about 15.5% of total Part D program revenues in 2017. This projected growth is due to expectations of further increases in the number of enrollees, changes in the distribution of enrollees among coverage categories (e.g., a movement from subsidized retiree plans to regular Part D plans and growth in the number of people reaching the catastrophic coverage level), a slowing of the trend toward greater generic drug utilization, and an increase in the use and the prices of specialty drugs. The Medicare Trustees project that total Part D expenditures will more than double during the next 10 years, from $94.5 billion in 2018 to $195.3 billion in 2027.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173) established a voluntary, outpatient prescription drug benefit under Medicare Part D, effective January 1, 2006. Medicare Part D provides coverage through private prescription drug plans (PDPs) that offer only drug coverage, or through Medicare Advantage (MA) prescription drug plans (MA-PDs) that offer coverage as part of broader, managed care plans. Private drug plans participating in Part D bear some financial risk, although federal subsidies cover most program costs in an effort to encourage participation and keep benefits affordable.
At a minimum, Medicare drug plans must offer a "standard coverage" package of benefits or alternative coverage that is actuarially equivalent to a standard plan. Plans also may offer enhanced benefits. Although all plans must meet certain minimum requirements, there can be significant differences among offerings in terms of benefit design, specific drugs included in formularies (i.e., lists of covered drugs), cost sharing for particular drugs, or the level of monthly premiums. In general, beneficiaries can enroll in a plan, or change plan enrollment, when they first become eligible for Medicare or during open enrollment periods each October 15 through December 7. For plan year 2018, there are between 19 and 26 PDPs in the nation's 34 PDP regions, in addition to Medicare Advantage plans. Because sponsors are allowed to change plan offerings from year to year, beneficiaries annually face the need for careful review of their choices to select the plans that best meet their needs.
A key element of the Part D program is enhanced coverage for low-income individuals. Persons with incomes up to 150% of the federal poverty level (FPL) and assets below set limits are eligible for extra assistance with Medicare Part D premiums and cost sharing. Individuals enrolled in both Medicare and Medicaid (so-called dual eligibles) and certain other low-income beneficiaries are automatically enrolled in no-premium plans, which are Part D plans that have premiums at or below specified levels.
In 2017, about 42.5 million out of a total of 58.6 million Medicare beneficiaries received prescription drug benefits through a PDP or an MA-PD, with almost one-third receiving a low-income subsidy. Another 1.6 million received drug assistance through a Part D-subsidized retiree health plan. Of the remaining 25% of Medicare beneficiaries not enrolled in Part D, about half had coverage through health care plans that was at least as generous as Part D; the other half had no coverage or coverage less generous than Part D. Overall, about 88% of Medicare beneficiaries had drug coverage through either PDP or MA-PD plans, retiree coverage, or private insurance of comparable scope. Total Part D expenditures were approximately $100.0 billion in calendar year 2017.
Medicare Part D has cost less than originally forecasted, due in part to lower-than-predicted enrollment and increased use of less expensive generic drugs. However, the Medicare Trustees project that spending on Part D benefits will accelerate over the next 10 years due to the expectation of further increases in the number of enrollees, costs associated with the gradual elimination of the out-of-pocket cost coverage gap, changes in the distribution of enrollees among coverage categories, a slowing of the trend toward greater generic drug utilization, and an increase in the use and the prices of specialty drugs.