PDP insurance is prescription drug coverage sold separately from your health plan

PDP stands for Prescription Drug Plan. It is insurance that covers the cost of prescription medications only — not doctor visits, hospital stays, or other medical care. You buy it on its own, separate from your health insurance. PDPs exist because Medicare does not automatically cover prescription drugs, so people on Medicare must choose a PDP or pay more for medications out of pocket.

A PDP works like this: you pay a monthly premium, and the plan covers a portion of your prescription costs at the pharmacy. How much you pay depends on which medications you take, which pharmacy you use, and which plan you choose. Different PDPs cover different drugs and charge different amounts, so the plan you pick matters for your actual costs.

PDPs are run by insurance companies, not by Medicare itself. Medicare sets the rules and oversees the plans, but Humana, CVS Caremark, United Healthcare, and other private insurers are the ones you actually pay and deal with. You can switch plans once a year during the Medicare open enrollment period, which runs from October 15 to December 7 each year.

Key Takeaways

  • A PDP is prescription drug insurance you buy separately; it covers medications only, not medical care or doctor visits.
  • You must enroll in a PDP during Medicare open enrollment (October 15 to December 7) or when you first become may be able to access for Medicare, or you may face a permanent penalty.
  • Different PDPs cover different drugs at different costs, so comparing plans based on the medications you actually take saves money.
  • You can use your PDP at any pharmacy that accepts it, though some drugs may require prior approval from the insurance company before the pharmacy will fill them.

Who needs a PDP and when to enroll

If you are on Medicare, you need a PDP unless you already have prescription drug coverage through another source. That other source could be an employer health plan, a retiree plan, TRICARE (military coverage), the Veterans Administration, or a Medicare Advantage plan that includes drug coverage. If you have one of those, you do not need a separate PDP.

You enroll in a PDP when you first become may be able to access for Medicare — usually at age 65. If you miss that window, you can enroll during the annual open enrollment period from October 15 to December 7. If you do not enroll when you are supposed to, and you do not have other drug coverage, Medicare charges you a late enrollment penalty. That penalty stays on your premium for as long as you have Medicare, so enrolling on time matters.

If you lose other drug coverage — for example, you retire and lose your employer plan — you have 63 days to enroll in a PDP without penalty. After 63 days, the late penalty kicks in. The penalty amount depends on how long you went without coverage, and it increases each year you remain uninsured.

How PDP costs work

A PDP has four main costs: the monthly premium, the annual deductible, copayments or coinsurance, and the out-of-pocket maximum. The premium is what you pay every month whether you fill a prescription or not. The deductible is the amount you pay out of pocket before the plan starts to help. Once you hit the deductible, you pay a copay (a flat dollar amount like $5 or $15) or coinsurance (a percentage of the drug cost, like 20%).

Most PDPs have a coverage gap, sometimes called the "donut hole." Once you and your plan have spent a certain amount on drugs — usually around $5,000 — you enter the gap and pay a higher percentage of the cost until you reach your out-of-pocket maximum. After you hit the maximum, the plan covers most of the cost for the rest of the year. The exact numbers change each year, and they vary by plan.

The cost of a specific drug depends on which "tier" it is on. Tier 1 drugs (usually generic) cost less. Tier 2 and 3 drugs (brand-name or more expensive generics) cost more. Tier 4 and 5 drugs (specialty or very expensive medications) cost the most. A plan's formulary is the list of drugs it covers and which tier each one is on. Before you pick a plan, you should check whether your medications are on the formulary and what tier they are.

Comparing PDPs to find the right plan

Because costs vary so much between plans, comparing them based on your actual medications is the only way to know which one will cost you less. Medicare provides a tool called the Plan Finder on Medicare.gov where you can enter the medications you take and see what each plan would cost you for a year. You enter your drugs, your pharmacy, and your location, and the tool shows you the total cost (premiums plus out-of-pocket costs) for each available plan.

When you compare, look at the total yearly cost, not just the premium. A plan with a low premium might have high copays or a high deductible, so it could cost you more overall. Also check whether your pharmacy is in the plan's network — using an out-of-network pharmacy costs more. Some plans have mail-order options that can lower costs for drugs you take regularly.

If your medications change during the year, you cannot switch plans until the next open enrollment period. So pick a plan that covers the drugs you take now and that you expect to take for the next year. If a drug you need is not on the formulary, you can ask the plan for an exception, but that takes time and is not may provide.

How to use your PDP at the pharmacy

Once you enroll in a PDP, you receive a card in the mail with your member ID number. When you fill a prescription, you give the pharmacy your PDP card along with your prescription. The pharmacy checks whether the drug is covered, what tier it is on, and what you owe. You pay your copay or coinsurance at that moment, and the plan pays the rest to the pharmacy.

Some drugs require prior authorization, which means the insurance company must approve the drug before the pharmacy will fill it. Your doctor's office usually handles this — they contact the plan, explain why you need the drug, and the plan approves it or denies it. This can add a few days to getting your prescription filled, so it is worth asking your doctor whether prior authorization is needed before you go to the pharmacy.

If a drug is not on the formulary or is in a higher tier than your doctor thinks it should be, you can ask the plan for a formulary exception. You or your doctor submit a request explaining why you need that specific drug. The plan reviews it and decides whether to cover it or move it to a lower tier. This process takes several days to a few weeks, so do not wait until you run out of medication to start it.

What happens if you switch plans or lose coverage

You can change PDPs once a year during open enrollment. When you switch, your old plan ends and your new plan begins on January 1. Make sure you have enough medication to last through the end of the year if your new plan has a deductible — you may have to meet it again in January before the new plan starts helping.

If you move to a different state, you may need to switch plans because not all PDPs are available in all states. You can change plans outside of open enrollment if you move. If you lose your PDP for any reason — the plan stops offering coverage in your area, or you lose Medicare — you have 63 days to enroll in a new plan without penalty.

If you are on a low income, you may be able to get help paying your PDP premiums and out-of-pocket costs through the Low-Income Subsidy program, also called "Extra Help." This is a separate program run by Social Security, and it can significantly reduce what you pay. You can explore through Social Security's website or by calling 1-800-772-1213.

PDPs versus Medicare Advantage plans with drug coverage

A Medicare Advantage plan (also called Part C) is an alternative to Original Medicare. Some Medicare Advantage plans include prescription drug coverage built in, so you do not need a separate PDP. If you are in a Medicare Advantage plan with drug coverage, you cannot also enroll in a PDP — you can only have one or the other.

The choice between a PDP and a Medicare Advantage plan with drug coverage depends on your situation. If you see many different doctors or specialists, Original Medicare with a PDP might give you more flexibility because you can see any doctor who accepts Medicare. If you are willing to use doctors in a specific network and want everything in one plan, a Medicare Advantage plan with drug coverage might be simpler and cheaper.

You can switch between Original Medicare with a PDP and a Medicare Advantage plan once a year during open enrollment. If you switch from Medicare Advantage to Original Medicare, you must enroll in a PDP at the same time or you will have a gap in drug coverage. If you switch from Original Medicare to Medicare Advantage, you can drop your PDP.

Frequently Asked Questions

What is the difference between a PDP and a Medicare Advantage plan?

A PDP is prescription drug coverage only — you buy it separately and use it with Original Medicare. A Medicare Advantage plan is an alternative to Original Medicare that includes medical care, hospital coverage, and usually prescription drugs all in one plan. You cannot have both at the same time.

Do I have to use a specific pharmacy with my PDP?

Most PDPs have a network of pharmacies where your copays are lower. You can use pharmacies outside the network, but you will pay more. Mail-order pharmacies are often in-network and can be cheaper for medications you take regularly. Check your plan's pharmacy list before you enroll.

What happens if my doctor prescribes a drug that is not on my PDP's formulary?

You can ask your doctor to prescribe a different drug that is on the formulary, or you can ask the plan for a formulary exception. Your doctor usually submits the exception request. The plan will review it and decide whether to cover the drug or move it to a lower tier. This takes several days to a few weeks.

Can I change my PDP if my medications change during the year?

No — you can only change plans during open enrollment (October 15 to December 7) or if you have a may have access to life event like moving to a different state. If a new medication you need is not covered, ask the plan for an exception instead of waiting until next year to switch.

What is the late enrollment penalty and how long does it last?

If you do not enroll in a PDP when you first become may be able to access for Medicare and you do not have other drug coverage, Medicare charges you a penalty on top of your premium. The penalty is roughly 1% of the national average PDP premium for each month you were without coverage. It stays on your premium for as long as you have Medicare, even if you enroll later.