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Medicare Part D

The prescription drug benefit within Medicare, covering outpatient medications for 50+ million Americans aged 65+ and those with disabilities.

How It Works

Medicare Part D was created by the Medicare Modernization Act of 2003 (MMA) and launched January 1, 2006. It is administered entirely by private plans, about 750 stand-alone Prescription Drug Plans (PDPs) and Medicare Advantage Prescription Drug plans (MA-PDs) offered by Humana, UnitedHealthcare, CVS Aetna, and dozens of regional insurers. Each plan files a formulary, cost-sharing tiers, and bid with CMS annually. The MMA also contained the "noninterference clause" prohibiting HHS from negotiating prices, a provision repealed for selected drugs by the IRA of 2022. Part D's original benefit structure included a deductible, an initial coverage phase (25% beneficiary coinsurance), a coverage gap (the "donut hole," patient paid 100% initially, phased down to 25% by 2020 under ACA provisions), and a catastrophic phase (5% beneficiary coinsurance with no cap). The IRA comprehensively redesigned this: 2024 eliminated the 5% catastrophic coinsurance; 2025 implemented a hard $2,000 annual out-of-pocket cap, eliminated the coverage gap, and introduced the Medicare Prescription Payment Plan (MPPP) allowing beneficiaries to spread OOP costs across monthly installments. Part D covered 51.3 million beneficiaries in 2024 with total program spending around $216 billion. The CMS Medicare Part D Drug Spending Dashboard, DrugPrice's primary data source, publishes per-drug spending and utilization back to 2016, providing the longest public time series of U.S. drug pricing data.

Related Terms

  • Formulary, A list of prescription drugs covered by an insurance plan, organized into tiers that determine how much the patient pays for each drug.
  • Out-of-Pocket Cost, The amount a patient pays directly for a prescription drug, including copays, coinsurance, and deductible payments.
  • Medicare Part D Redesign (2025), The IRA-mandated restructuring of Medicare Part D, effective January 1, 2025, that caps annual out-of-pocket drug spending at $2,000 and shifts cost-sharing liability among plans, manufacturers, and government.
  • IRA Medicare Drug Negotiation, The process under the Inflation Reduction Act where CMS negotiates a "maximum fair price" directly with manufacturers for selected high-cost Medicare drugs.

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About This Definition

This definition is part of the DrugPrice Drug Pricing Glossary, 49 terms explaining how prescription drug pricing works in the United States. All definitions are written in plain language for patients, caregivers, journalists, and healthcare professionals.

this entity is one of the U.S. Medicare prescription-drug pricing concepts that recurs across this site. The definition above is the technical answer; the paragraphs below add the practical context for how the concept connects to the CMS Medicare Part D Drug Spending data data behind every per-entity page on the site.

In the CMS Medicare Part D Drug Spending data data, this concept shapes one or more of the fields that drive the per-entity grades and rankings on this site. The methodology page describes which fields feed into which output; this glossary entry documents the underlying term.

Source: CMS Medicare Part D Spending, 2026.