How Medicare Part D Drug Coverage Works

Medicare Part D covers prescription drugs through private insurance plans you choose and pay for separately from Original Medicare. The plans are run by insurance companies approved by Medicare, not by Medicare itself. Each plan has its own list of covered drugs — called a formulary — which changes every year. A drug covered by one plan may not be covered by another, or may cost you more.

Part D covers most prescription drugs, but not all. The law specifically excludes certain categories: over-the-counter medications, drugs used for cosmetic purposes, and some older medications that have been replaced by newer alternatives. Your plan's formulary will tell you exactly which drugs are covered and at what cost to you.

Coverage is not free. You pay a monthly premium to the insurance company, and you also pay out of pocket when you fill a prescription. How much you pay depends on which plan you choose, which drug you need, and where you are in the coverage year.

Key Takeaways

  • Medicare Part D is sold by private insurance companies, not by Medicare directly, and each plan covers different drugs at different costs.
  • Every plan publishes a formulary listing which drugs are covered; you can search your plan's formulary online or call the plan to check a specific drug.
  • If your plan does not cover a drug your doctor prescribed, you can ask your doctor to prescribe a covered alternative, or you can switch to a different plan during the annual enrollment period.
  • Most plans charge you less for generic drugs than brand-name drugs, and less for drugs on their preferred list than for drugs not preferred.
  • If a drug costs more than a certain amount per year, you may reach a coverage gap where you pay more out of pocket, though catastrophic coverage kicks in after that.

How to learn about a Specific Drug Is Covered

The fastest way is to search your plan's formulary on Medicare.gov. Go to the Medicare Plan Finder tool, enter your current plan name, and search for the drug by name. The tool will show you whether it is covered, what tier it is on (which affects your cost), and whether your doctor needs to get prior approval before you can fill it.

If you do not know your plan name, call the customer service number on the back of your Medicare card. Have the drug name and strength ready — for example, "metformin 500 mg" rather than just "metformin." The representative can tell you the cost and any restrictions in less than five minutes.

If you are shopping for a plan and want to know whether a specific drug will be covered before you sign up, use the Plan Finder tool to compare plans. Enter the drugs you take, and the tool will show you which plans cover them and what your total out-of-pocket cost would be under each plan.

Drug Tiers and What They Cost You

Most Part D plans organize drugs into tiers, usually four or five levels. Tier 1 drugs (generics) cost you the least. Tier 2 drugs (preferred brand-name) cost more. Tier 3 and Tier 4 drugs (non-preferred brand-name and specialty drugs) cost the most. Some plans also have a separate tier for drugs that require prior approval or have other restrictions.

Your cost for each tier is set by your plan and may be a flat copay (for example, $10 for a Tier 1 drug) or a percentage of the drug's price, called coinsurance. Coinsurance means you pay a percentage — often 25 percent — of what the drug costs, and your plan pays the rest. As you spend more on drugs during the year, your copays or coinsurance may change.

If your doctor prescribes a brand-name drug but a generic version exists, ask whether the generic would work for you. Generics are chemically identical to brand-name drugs and almost always cost less. If you need a brand-name drug specifically, your doctor can request an exception, but this usually requires the plan to approve it first.

Prior Authorization and Other Restrictions

Some drugs require prior authorization, meaning your doctor must contact your plan and get approval before you can fill the prescription. This is common for expensive drugs, drugs that treat multiple conditions, or drugs that have cheaper alternatives available. Prior authorization usually takes a few business days, so ask your doctor to submit the request as soon as possible.

Other drugs may have a quantity limit — your plan will only cover a certain amount per month or per year. For example, a plan might cover only one inhaler per month. If you need more, you pay out of pocket or your doctor can request an exception.

Some drugs require step therapy, meaning you must try a cheaper or safer drug first. If that drug does not work, your plan will then cover the more expensive one. Your doctor can request an exception if there is a medical reason you cannot take the first-line drug.

What Happens If Your Plan Does Not Cover Your Drug

If your plan's formulary does not include a drug your doctor prescribed, you have three options. First, ask your doctor whether a covered alternative would work. Many drugs in the same class work similarly, and your doctor may be willing to switch you to a covered drug.

Second, request a formulary exception from your plan. Your doctor submits a letter explaining why you need that specific drug. The plan has 72 hours to decide. If the plan approves the exception, it will cover the drug. If it denies the exception, you can appeal.

Third, you can switch to a different Part D plan during the annual enrollment period, which runs from October 15 to December 7 each year. If you find a plan that covers your drug, you can enroll in that plan and it will take effect January 1. Outside the enrollment period, you can only switch plans if you have a may have access to life event, such as moving to a new state or losing other drug coverage.

The Coverage Gap and Catastrophic Coverage

As you spend money on drugs during the year, you move through different coverage stages. Once your total out-of-pocket spending reaches a certain amount — the exact amount varies by year and plan — you enter the coverage gap, sometimes called the "donut hole." In the gap, you pay a higher percentage of drug costs, though you still get some discount on brand-name drugs.

Once your out-of-pocket spending reaches a second threshold, called the catastrophic coverage limit, your plan covers most of the cost and you pay only a small copay or coinsurance for the rest of the year. The exact thresholds change each year. Your plan's summary of benefits document will show you the current amounts.

If you take expensive drugs and expect to reach the gap, ask your plan or pharmacist about programs that help. Some drug manufacturers offer copay cards that reduce your cost in the gap. Some plans offer programs that help low-income people pay for drugs in the gap.

Special Situations: Low Income and Extra Help

If your income is low, you may be able to get help paying Part D premiums and out-of-pocket costs through a program called Extra Help (also called the Low-Income Subsidy). Extra Help is run by Social Security, not by Medicare. You can learn about it by calling Social Security at 1-800-772-1213 or visiting ssa.gov.

If you are enrolled in both Medicare and Medicaid (called "dual may be able to access"), your state's Medicaid program may cover some drugs that Medicare Part D does not, or may help pay your Part D costs. The rules vary by state.

Frequently Asked Questions

Can I use a GoodRx coupon or discount card instead of my Part D plan?

You can, but it usually costs you more. When you use a discount card, you do not count that spending toward your Part D out-of-pocket maximum, so you stay in the coverage gap longer. It is almost always cheaper to use your Part D plan, even if the copay is high. Ask your pharmacist to compare the price with your plan before you decide.

What if my drug is not on any plan's formulary?

Very few drugs are excluded from all plans. Use the Plan Finder tool to search multiple plans. If a drug truly is not covered by any plan in your area, you can ask your doctor whether a similar drug would work, or you can pay out of pocket and keep your receipts — you may be able to deduct the cost on your taxes if you itemize.

Do I have to take the generic version if my plan covers it?

No. You can choose to take a brand-name drug instead, but you will pay the difference between the generic price and the brand-name price out of pocket. Your plan will cover only what it would have paid for the generic.

Can I change my Part D plan if my drug costs too much?

Yes, during the annual enrollment period from October 15 to December 7. You can switch to any other Part D plan available in your area. The new plan takes effect January 1. If you have a may have access to life event such as moving or losing other coverage, you can switch outside the enrollment period.

What if my doctor says I need a brand-name drug and the generic does not work for me?

Ask your doctor to submit a prior authorization or formulary exception request to your plan, explaining the medical reason. Your plan has 72 hours to decide. If the plan approves, it will cover the brand-name drug. If it denies, your doctor can appeal or you can request an exception yourself.