Medicare Part D, also known as a prescription drug plan (PDP), has a list of covered medications known as a formulary. Each formulary has tiers, with generic, more cost-effective medication on lower tiers.
Private insurance companies administer PDPs. When they allocate a medication to a specific tier, they also determine how much a person will pay toward the cost of their prescription drugs.
Glossary of Medicare terms
We may use a few terms in this article that can be helpful to understand when selecting the best insurance plan:
- Out-of-pocket costs: An out-of-pocket cost is the amount a person must pay for medical care when Medicare does not pay the total cost or offer coverage. These costs can include deductibles, coinsurance, copayments, and premiums.
- Deductible: This is an annual amount a person must spend out of pocket within a certain period before an insurer starts to fund their treatments.
- Coinsurance: This is the percentage of treatment costs that a person must self-fund. For Medicare Part B, this is 20%.
- Copayment: This is a fixed dollar amount a person with insurance pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
The company that first manufactures a drug is the only one that can sell the medication until the patent expires, which can sometimes take up to
After the patent expires, other companies can make
The drug can only be a generic copy if it has the same:
- dosage form and route
- intended use
- performance
- quality
- safety
- strength
All generic drugs use the same active ingredients as brand-name drugs, but they may use different inactive ingredients. However, the manufacturer producing the new generic version must prove that it works in the same way as the original brand-name option.
A formulary is a private insurers’ covered drugs list, that shows which drugs a person’s PDP will cover.
In a formulary, the plan provider will have at least two of the most commonly prescribed drugs, but they can add or remove them from the list at any time with good reason.
For example, coverage may change if:
- new drugs are released
- new medical research informs new treatment
- standard medical therapy changes
Some plans can remove brand-name drugs and replace them with generic alternatives, and sometimes the cost of a brand-name drug changes when a generic one becomes available.
A plan provider should always give a person notice of any change to a formulary or to the price of their medication.
Each private insurer can organize its tiers differently, but generally, drugs at the lowest tier will cost less than drugs at the highest. A person usually only pays the copayment assigned to the tier.
When a doctor or another healthcare professional prescribes a drug, the insurer informs the pharmacy of the drug’s tier. The pharmacy then charges the person the appropriate copayment.
- Tier 1: These are mostly generic medications that typically have the lowest copayment.
- Tier 2: These are mostly preferred brand-name drugs that have a slightly higher copayment.
- Tier 3: These are typically nonpreferred, brand-name medications that have a higher copayment.
- Specialty tier: These are high cost prescription drugs that have the highest copayment.
Insurers may organize their plans differently, with different cost structures.
Filing an exception
There are two different Plan D exceptions that a person can file:
- Tier exception: Sometimes a person is unable to take a generic version of a medication. This may be for many reasons, including sensitivities to its inactive ingredients. If a person has a prescription for a brand-name drug that is on a higher tier than its generic version, they can file an exception and ask the plan provider to review the drug options.
- Formulary exception: Occasionally, a prescribed drug may not be included on the plan’s formulary at all. In these cases, a person can ask the insurer to make an exception.
In both cases, the prescribing doctor or another healthcare professional must provide a supporting statement for the exception plus further information the plan provider may require. The insurer may then choose to cover a drug if there is sufficient evidence of its medical necessity.
Medicare Part D, or PDP, covers outpatient prescribed drugs that a person can administer themselves.
A person is eligible for a PDP when they first join Medicare. If they decide not to enroll when they are first eligible, a late enrollment penalty may apply.
Enrollment
Individuals can obtain coverage for prescription medication by enrolling in a stand-alone PDP that works alongside Original Medicare or through a Medicare Advantage plan (Part C) that includes prescription drug coverage.
Medicare’s Plan Finder tool allows people to find and compare plans in their area. Different insurers cover different drug options, so it may be useful for individuals to check that the plan covers the specific drug they need.
Once an individual has chosen the best plan for their needs, they can contact the company administering it using the details provided by Medicare’s search results.
It is important to note that a person cannot have a Medicare Advantage plan with drug coverage and a stand-alone PDP at the same time.
A person will have several out-of-pocket costs for Medicare Part D.
Most plans have a premium, which is a charge a person must pay every month to keep their plan.
There may also be a deductible to pay before the plan starts to cover the drugs, but some plans do not have one.
Private companies can choose the deductible amount each year, but Medicare does not allow a deductible higher than $545 in 2024.
Medicare Part D changes for 2025
There are changes coming for Part D in 2025 following the passing of new drug laws.
These will include the introduction of Medicare Prescription Payment Plans, manufacturer discount plans, and changes to vaccine and insulin benefits.
Coverage gap
Most Medicare Part D plans have a coverage gap known as the “donut hole.”
The coverage gap starts after the person and plan have spent the Medicare-set limit for covered drugs.
In 2024, the annual spend to reach the coverage gap is $5,030. This amount can change every year.
Not everyone enters the coverage gap, but when they do, there is a temporary limit on how much the plan pays.
When a person is in the coverage gap, they pay no more than 25% of the cost of brand-name prescription drugs, but the full price of the drug will count toward out-of-pocket costs.
Medicare has a program that can help certain individuals with the costs associated with prescribed medications.
Named Extra Help, this program is available for those who meet certain criteria.
To qualify a person must:
- be enrolled in a Medicare plan
- live in one of the 50 states or the District of Columbia
- have limited resources or income
Medicare defines resources as the value of a person’s assets, such as real estate, bank accounts, and individual retirement accounts.
Medicare Part D provides prescription drug coverage. Private insurers administer these plans, which are also known as prescription drug plans (PDPs).
The plans have a list of covered medications known as a formulary. The formulary has different pricing levels, also called tiers, with generic drugs on the lowest tier, which are usually generic drugs that cost less.
Generic drugs are versions of brand-name drugs that share active ingredients.
There are some associated out-of-pocket costs with PDPs, but in 2024, Medicare will not allow private companies to set a deductible higher than $545 per year.