What is Medicare Part D?

This is a drug prescription plan. It went into effect on January 1, 2006  with the passage of the Medicare Prescription Drug, Improvement, and Modernization Act. But it has been amended, as we'll see in a bit.

In essence, Part D moves some costs of prescription drugs to patients through what is called the "donut hole" or coverage gap.

In order to receive Part D, a person with Medicare must enroll in a stand-alone Prescription Drug Plan or the Medicare Advantage plan with prescription drug coverage.

These plans are regulated by Medicare, but are designed and run by private health insurance companies. Plans choose which drugs they wish to cover, and are free to choose not to cover some drugs at all.

During the initial coverage phase, subscribers pay a co-payment and the Part D drug plan pays its share for each covered drug until the combined amount — including deductible — reaches $2,840.

Once a subscriber and Part D drug plan have spent $2,840 for covered drugs, a person would be in the "donut hole," where patients have to pick up the full costs of the drugs. This went on from 2006 to 2011.

However, starting in 2011, patients in the donut hole get a 50% discount on covered brand-name prescription medications.

The donut hole continues until total out-of-pocket costs reach $4,550. When someone spends more than $4,550 out-of-pocket, the coverage gap ends and the drug plan pays most of the costs of covered drugs for the remainder of the year.

As the last part of the previous sentence points out, co-payments and drug costs start from scratch every year.