What Part D Covers
Medicare Part D is an optional benefit that covers outpatient prescription medications. It does not cover drugs administered in a hospital or doctor's office — those fall under Part A or Part B. Part D plans are offered by private insurance companies approved by Medicare, and each plan maintains its own list of covered drugs called a formulary.
Every Part D formulary must cover at least two drugs in each therapeutic category, and all or substantially all drugs in six “protected classes” — including HIV/AIDS medications, antidepressants, antipsychotics, anticonvulsants, immunosuppressants, and anticancer drugs. Beyond those minimums, plans have wide latitude in which drugs they include and at what cost tier.
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How to Get Part D
You can get Part D coverage in two ways:
- Standalone Part D plan (PDP): Paired with Original Medicare (Parts A and B), with or without a Medigap supplement.
- Medicare Advantage plan with drug coverage (MA-PD): Many Medicare Advantage plans bundle Part D into the plan.
If you don't enroll in Part D when you're first eligible and don't have other creditable drug coverage, you may owe a late enrollment penalty — a permanent surcharge added to your monthly premium. The penalty is calculated as 1% of the national base beneficiary premium multiplied by the number of months you went without creditable coverage.
The Coverage Phases
Part D has a multi-phase cost structure that can feel confusing at first. Here's how the stages work for 2026:
- Deductible Phase: You pay 100% of drug costs until you've spent up to the maximum standard deductible ($615 in 2026). Some plans have a $0 deductible or waive it for certain drug tiers.
- Initial Coverage Phase: After the deductible, you typically pay 25% coinsurance and the plan pays 75%, until your total out-of-pocket spending reaches the annual cap.
- Out-of-Pocket Cap: Once you've spent $2,100 out of pocket in 2026, you enter the catastrophic phase.
- Catastrophic Phase: Starting in 2025, beneficiaries pay $0 in the catastrophic phase — the 5% coinsurance that previously applied has been eliminated under the Inflation Reduction Act.
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Formulary Tiers and Drug Costs
Most Part D plans organize drugs into tiers, each with different cost-sharing:
- Tier 1 (Preferred Generics): Lowest copays, often $0–$15.
- Tier 2 (Generics): Slightly higher copays.
- Tier 3 (Preferred Brands): Moderate copays or coinsurance.
- Tier 4 (Non-Preferred Drugs): Higher coinsurance, often 40–50%.
- Tier 5 (Specialty): Highest cost-sharing, typically 25–33% coinsurance.
Plans can move drugs between tiers each year. Always check your plan's formulary during Open Enrollment to make sure your medications are still covered and at a tier you can afford.
Extra Help (Low-Income Subsidy)
If your income and resources are limited, you may qualify for Extra Help (also called the Low-Income Subsidy or LIS). Extra Help can pay for some or all of your Part D premiums, deductibles, and copays. You can apply through Social Security, your state Medicaid office, or at Medicare.gov.
Tips for Choosing a Part D Plan
- List all your current prescriptions, including dosages.
- Use the Medicare Plan Finder at Medicare.gov to compare estimated annual costs — not just premiums.
- Check that your preferred pharmacy is in the plan's network (mail-order pharmacies often have lower costs).
- Look at the plan's formulary to confirm your drugs are covered and note their tier.
- Consider plans that offer a $0 deductible if you take multiple medications.
Source note: Coverage phases, deductible, and out-of-pocket cap figures reflect the CMS Final Rule for Contract Year 2026. Verify current figures at Medicare.gov.
