Medicare Regarding Your Prescription Drugs
Medicare Part D plans are designed to help pay some of the cost of your prescription drugs. These plans are optional. However, if you do not sign up when you become eligible there may be a penalty attached to the premium of any prescription drug plan that you do enroll in at a later date. Part D plans are offered by private insurance companies and vary by which drugs are covered (formulary), premium, deductible and copayments.
How do Medicare Part D plans work?
Part D plans are one of the more complex elements of Medicare. Plans may be a stand-alone prescription plan that is then combined with a Medicare supplement, or they can be coverage built into a Medicare Advantage plan, but all have the same general structure.
Each plan has a list of prescriptions covered by the plan. This list is called the formulary. Within the formulary, each prescription is placed in a tier. Preferred generic drugs, which are usually the least expensive, are typically tier 1. The more expensive the prescription the higher the tier and the higher the copayment or coinsurance.
There are three phases of Medicare Part D: the Deductible phase, the Initial Coverage phase, and the Catastrophic Coverage phase. The timing of your transition from one phase to another is based on the retail cost of the prescription drugs that you need.
What is the Deductible Phase?
Some plans have an annual drug deductible that must be met before the plan begins to pay. During this phase all out-of-pocket costs for your drugs that the plan counts toward your deductible. Deductibles can range in amount, but the upper limit is $615 for 2026. When the total retail cost of your Medicare approved prescription drugs covered by that plan reaches that year’s threshold, you will transition into the Initial Coverage phase.
What is the Initial Coverage Phase?
Once the Deductible is met, you will begin to pay approximately 25% of the cost for your Medicare approved drugs. Plans may vary the amount you pay by Tier.
The following costs count during your Initial Coverage phase:
• Your annual deductible
• Your coinsurance or copayments during the Initial Coverage Phase
• The discount you get on Medicare covered brand-name drugs
• The cost of your Medicare covered prescriptions
These charges accumulate until you reach the Catastrophic Coverage limit for your out-of-pocket spending for your drugs which for 2026 is $2,100.
What is Catastrophic Coverage?
If you reach the Catastrophic Coverage phase of Medicare Part D, you will pay $0 for your Medicare approved prescription drugs. You will remain in this phase for the rest of the year. You are still required to pay any premium for the plan, and will be required to pay for any drugs not covered by Medicare. Everything resets on January 1st, when Medicare Part D phases begin anew.
What pharmacies can I use with Medicare Part D?
Private insurance companies use a network of pharmacies, but most will have a preferred pharmacy with which they are partnered where copayments are usually lower.
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