Medicare Part D Explained: Drug Plans, Coverage Phases and the Out-of-Pocket Cap

What Part D is and how you get it

Medicare.gov's overview of the parts of Medicare says Part D helps cover the cost of prescription drugs. You get it in one of two ways: by joining a Medicare drug plan in addition to Original Medicare, or by joining a Medicare Advantage plan that includes drug coverage. The plans are run by private insurance companies that follow rules set by Medicare. Part B also covers a limited set of outpatient prescription drugs, listed on Medicare.gov's page on what Part B covers; our Part B guide explains how Part B costs work.

Medicare.gov's comparison of the two options notes that most Medicare Advantage plans include Part D, so you do not join a separate drug plan. In some Medicare Advantage plan types, if the plan has no drug coverage you cannot add a separate Medicare drug plan, so check before you enroll.

The late enrollment penalty

Part D is optional, but Medicare.gov's Part D costs page explains a penalty for joining late. You may owe it if, after your Initial Enrollment Period ends, you go 63 or more days in a row without Medicare drug coverage or other creditable prescription drug coverage. The penalty is 1% of the national base beneficiary premium ($38.99 in 2026) for each full month you went without coverage, and it is generally added to your premium for as long as you have Medicare drug coverage. People who get Extra Help do not pay it.

Formularies and tiers

A plan's list of covered drugs is called a formulary. Medicare.gov's page on how drug plans work says every plan must cover a wide range of drugs, including at least 2 drugs in the most commonly prescribed categories and classes, and most drugs in certain protected classes: cancer drugs, HIV/AIDS drugs, antidepressants, antipsychotics, anticonvulsants and immunosuppressants for organ transplants. Within those rules, plans choose which drugs they offer.

Tiers

Many plans place drugs into tiers. Generally, a drug in a lower tier costs you less than one in a higher tier. Medicare.gov gives an example, noting that your plan's tiers may differ:

• Tier 1, lowest copayment: most generic drugs.
• Tier 2, medium copayment: preferred brand-name drugs.
• Tier 3, higher copayment: non-preferred brand-name drugs.
• Specialty tier, highest copayment: very high-cost drugs.

When a drug is not covered

If your drug is not on the formulary, the same page says a similar drug is usually available. If you or your prescriber believe none of the covered drugs will work for you, you can ask the plan for an exception, and your prescriber must provide a supporting statement explaining the medical reason. A tiering exception asks the plan to charge a lower amount for a drug on a non-preferred tier. Plans can change their drug lists during the year under Medicare guidelines, and must tell you about changes that affect drugs you take.

Plan rules: prior authorization, step therapy and quantity limits

Medicare.gov's page on drug plan rules describes rules a plan may use for some drugs:

• Prior authorization: you or your prescriber must get approval from the plan before it covers the drug.
• Step therapy: you must first try a less expensive drug on the plan's list that works for most people with your condition, such as a generic or biosimilar, before the plan covers a more expensive one.
• Quantity limits: the plan covers only a certain amount over a period, for example 30 tablets a month.

For each rule, you or your prescriber can ask for an exception, with a supporting statement from the prescriber. When your coverage begins, you may also get a transition fill: a one-time, 30-day supply of a drug you have been taking that the new plan does not cover or restricts.

What you pay: the three coverage stages

Medicare.gov's Part D costs page says drug plans generally have three stages in a calendar year. The amounts below are the national limits; your plan's actual costs can be lower.

1. Deductible stage

If your plan has a deductible, you pay the full cost of your covered drugs until you reach it. No Medicare drug plan may have a deductible of more than $615 in 2026 or $700 in 2027, and some plans have no deductible.

2. Initial coverage stage

After the deductible, you pay 25% of the cost as coinsurance for generic and brand-name drugs until your out-of-pocket spending on covered Part D drugs reaches $2,100 in 2026 or $2,400 in 2027. Certain payments made on your behalf, such as through Extra Help, count toward that amount.

3. Catastrophic coverage stage

Once you reach the out-of-pocket threshold, you pay nothing for covered Part D drugs for the rest of the calendar year. The count starts again on January 1.

Premiums and statements

Your plan may also charge a monthly premium, which you pay to the plan, not to Medicare. The month after the pharmacy bills your plan, you get an Explanation of Benefits from the plan showing what you and the plan paid and which stage you are in.

Help with drug costs

Extra Help

Extra Help is a Medicare program for people with limited income and resources. Medicare.gov's Extra Help page says you get it automatically if you have full-benefit Medicaid, get help from your state paying your Part B premium through a Medicare Savings Program, or receive Supplemental Security Income. Others can apply. For 2026 the page lists an income limit of $23,940 and a resource limit of $18,090 for an individual, and $32,460 and $36,100 for a married couple, with different limits in Alaska and Hawaii.

For 2027 the same page lists, for people with Extra Help, a $0 plan premium, a $0 deductible and up to $5.80 for each generic and $14.40 for each brand-name drug at participating pharmacies. Extra Help is not available in Puerto Rico and the U.S. territories, which have their own programs.

Other options

The costs page also lists state pharmaceutical assistance programs, manufacturer assistance programs, and the Medicare Prescription Payment Plan, which spreads your out-of-pocket drug costs across the year. Medicare.gov notes that the payment plan can help with monthly budgeting but does not save you money or lower your drug costs.

How to compare drug plans

You can change your drug coverage during the Open Enrollment Period, October 15 to December 7, with the new coverage starting January 1. Medicare.gov's page on joining a plan suggests:

1. Use the plan finder on Medicare.gov and add all the prescription drugs you take regularly, with doses, to get the most accurate yearly cost estimate for each plan.
2. Check that each drug is on the plan's formulary, which tier it is on, and whether it has prior authorization, step therapy or quantity limits.
3. Ask whether your usual pharmacies are in the plan's network.
4. Compare the total estimated yearly cost, not just the premium.
5. For free one-on-one help, contact your State Health Insurance Assistance Program (SHIP), or call 1-800-MEDICARE (1-800-633-4227).

If you are also deciding between Original Medicare and Medicare Advantage, our guide to how that choice affects your doctors covers networks and referrals.

Part D prescriber data on T-MedInfo

Profiles on this site may include a Medicare Part D section. It comes from CMS's public Medicare Part D Prescribers by Provider and Drug dataset and shows, for each data year we have loaded, the drugs a clinician prescribed that were paid under Part D, with the number of prescriptions, days' supply, total drug cost and number of patients. CMS does not publish a drug for a prescriber when it had fewer than 11 claims.

This data describes past prescribing to Medicare patients. It does not show what any plan covers, what a drug will cost you, or whether a prescription was right for a patient, and it is not a measure of quality of care. For your own costs, use your plan's formulary and the Medicare.gov plan finder.

Questions to ask

• To your prescriber: is there a generic, biosimilar or lower-tier drug that would work for me?
• To the plan: is my drug on your formulary next year, on which tier, and with which rules?
• To the pharmacy: are you a preferred pharmacy in this plan's network?
• To Social Security or your SHIP: do I qualify for Extra Help?