Objective: To evaluate the effect of Medicare new drug benefit (Part D) on utilization of psychotropic medications and the consequent financial burden for elderly. Methods: The effect of Medicare Part D was measured using 24 months pharmacy claims collected from one of the largest retail pharmacy chains in the United States. Among the approximately 70 million individuals who filled prescriptions at the pharmacy chain in 2006, 11% were 65 years or older. Segmented regression of interrupted time series analysis was employed to evaluate population level changes in the utilization of three most commonly used psychotropic therapeutic categories among elderly, namely antidepressants, antipsychotics and benzodiazepines. Results: Since Part D came into effect, the proportion of out-of-pocket payment in total pharmacy reimbursement decreased 18% for antidepressants (net saving: $4.5 per prescription) and 21% for antipsychotics (net saving: $5.7 per prescription). In contrast, the out-of-pocket share the elderly paid for benzodiazepines increased 19% (net increase: $2.8 per prescription). Part D implementation was associated with significant month-to-month increase in use of antidepressants [1679 prescriptions per month (95%CI:719, 2639)] and antipsychotics [567 prescriptions per month (95% CI:413, 720)]. By December 2006, the antidepressant and antipsychotic prescriptions filled by seniors grew 7% (from 273,166 to 293,590 prescriptions per month, P<0.001) and 18% (from 41,079 to 48,276 prescriptions per month, P<0.001) respectively as compared to the expected level estimated based on prior Part D trend. In contrast, Part D led to an immediate and sustained drop of 5% (from 238,961 to 226,622 prescriptions per month, P<0.001) in benzodiazepine prescriptions filled by elderly. Conclusion: Our findings revealed that Medicare Part D improved the access to psychotropic medications covered under plan through reducing out-of-pocket expenses. However, the financial burden related to psychotropic medications excluded from the Part D formulary, such as benzodiazepines, has significantly increased.