Medicare Part D, prescription drug coverage

Original Medicare (Parts A and B) does not cover most prescription drugs you take at home. Part D fills that gap. You get it one of two ways: as a standalone drug plan that sits alongside Original Medicare, or baked into a Medicare Advantage plan that already bundles your drug coverage in. Either way, the coverage is run by a private insurer under federal rules, and the details live in a document called the formulary.

A formulary is the plan's list of covered drugs, sorted into tiers. A typical structure runs five tiers: Tier 1 preferred generics, Tier 2 generics, Tier 3 preferred brand-name drugs, Tier 4 non-preferred drugs, and Tier 5 specialty drugs. The lower the tier, the less you pay.

This is where the real money is decided, and it is why premium-shopping is a trap. Two plans can advertise similar monthly premiums, then place your specific medication on different tiers, or leave one of your drugs off the list entirely. The plan with the slightly higher premium can easily be the cheaper plan once your actual prescriptions are run through it.

A formulary can also attach strings to a drug:

• Prior authorization: the plan wants your doctor to justify the prescription before it will pay.
• Step therapy: the plan wants you to try a cheaper drug first, and only moves you up if that one does not work.
• Quantity limits: the plan caps how much it will cover in a given period.

None of these are unusual, and none of them mean the plan is bad. They do mean that the right way to choose a Part D plan is to start with your drug list, not the price tag.

One more thing the formulary does that catches people off guard: it can change. A plan's drug list and tiers are set for the plan year, but from one year to the next a plan can move your drug to a higher tier, add a prior-authorization requirement, or drop it entirely. This is one of the reasons the Annual Notice of Change your plan mails each fall is worth reading rather than recycling, and one of the reasons it is worth re-checking your plan against your prescriptions every year rather than letting it auto-renew on faith.

Part D coverage moves through stages over the course of a year, and understanding the shape helps the costs make sense.

You may start the year paying full price up to a deductible, if your plan has one (no plan can set the deductible above $615 in 2026). After that, you enter the initial coverage phase, where you pay your copay or coinsurance and the plan pays the rest.

The big change is what happens after that. For years, there was a coverage gap, the notorious "donut hole," where your share of costs jumped in the middle of the year before catastrophic coverage finally kicked in. That gap has been phased out. In its place is a hard annual cap: once your out-of-pocket spending on covered Part D drugs reaches the annual cap, which is $2,100 in 2026, you pay nothing more for covered drugs for the rest of the year.

The practical effect is significant for anyone on expensive medications: a year that used to be unpredictable and frightening now has a known ceiling. It does not make Part D simple, but it removes the single most confusing and punishing part of the old design.

Even with the annual cap, hitting a large drug cost early in the year can sting if it all lands at once. There is now an option to spread your out-of-pocket Part D costs into capped monthly payments across the year rather than paying a big amount at the counter in, say, January.

It does not lower your total cost; it changes the timing, smoothing a spike into level payments. For someone on a fixed monthly income with an expensive specialty drug, that timing can be the difference between manageable and not. It is opt-in, so it is worth knowing it exists rather than discovering it after a rough month.

Write down every medication you take: the name, the dose, and how often you take it. Then run that list through the official Plan Finder at medicare.gov, which will show you what each available plan would cost you for your specific drugs over a full year, not just the headline premium.

The yearly view is the one that matters. A plan that looks cheap in January can cost you more by summer if it covers your drugs poorly. The goal is the lowest total cost across the year for the drugs you actually take, accounting for the premium, the deductible, the tier each drug sits on, and which pharmacies the plan treats as preferred. That last point is easy to miss: many plans charge less at their "preferred" pharmacies than at others, so where you fill can change the price of the same drug on the same plan.

Part D has a penalty for signing up late, and like the Part B penalty, it is permanent. If you go 63 days or more without Part D or other creditable drug coverage after you were first eligible, you can owe a penalty calculated from the number of months you went without, added to your premium for as long as you have Part D. The penalty is 1% of the national base beneficiary premium ($38.99 in 2026) for each full month you went without, so it grows the longer the gap ran.

The reason this catches people is that they feel fine and take no regular medications at 65, so they skip Part D. Years later they need a prescription, sign up, and discover the penalty rides along permanently. The key term is creditable coverage: drug coverage at least as good as Medicare's, which some employer and retiree plans provide. If you had creditable coverage, that time does not count against you, and you should keep the notice that proves it; plans send a "creditable coverage" letter each year for exactly this reason. If you did not, enrolling on time is the cheaper choice even if you take nothing today, because the penalty is built to outweigh the premiums you would have skipped.

If you are on Original Medicare, you add a standalone Part D plan. If you choose a Medicare Advantage plan, drug coverage is usually built in already, which is called an MA-PD. You generally should not carry both, and here is the trap worth flagging: in most cases, enrolling in a standalone Part D plan while you are on a Medicare Advantage plan that includes drug coverage will actually disenroll you from the Advantage plan and drop you back to Original Medicare. People have accidentally undone their whole coverage setup this way, meaning to "add drugs" to a plan that already had them. It is a mechanical rule with real consequences, so it is worth confirming exactly what your current plan includes before you enroll in anything new.