Medicare Part D Drug Coverage

What Is Medicare Part-D?

Medicare Part-D can best explained as Medicare drug coverage. We often tell our clients that Part-D stands for drugs. D for drugs! Easy right? Yes, that part is easy, but knowing everything that is needed to make a good selection with your Medicare Part-D plan can be a bit more complex than just knowing what it does. There are two ways a person can get Part-D coverage:
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• They can purchase what is known as a Stand Along Part-D Plan or PDP (Prescription Drug Plan).
• This typically is purchased to pair with a Medicare Supplement.
• They can purchase a Medicare Advantage plan that includes Part-D coverage with the plan.

Whether you get your Part-D plan included with an Advantage plan or on its own with a stand alone plan, they both are structured in the same format and work relatively the same way. Let's dive into that a bit further!

What Is Medicare Part-D?

Part-D plans determine their coverage by having unique formularies. A formulary can best be explained as a large list that is made up of hundreds (and maybe even thousands) of medications. This formulary is going to determine what medications the plan will cover, and how well it will cover them. In the Medicare world, they have a tier system. Tiers can be explained as categories that different medications are placed into to determine how well the plan will cover said drug. Typically, plans will have tiers 1-5, with 1 being the lowest and 5 being the highest. The higher the tier, the higher the copay. It is common for tiers 1 and 2 to be your generic medications, and for tiers 3 and 4 to be your brand name medications, with tier 5 being your specialty medications.

One important element that can make a difference between one Part-D plan opposed to another, is that different Part-D plans can determine which tier they are going to place a certain prescription into. For example, company A can decide to place a medication in their tier 2. Company B can decide to put the exact same prescription into tier 3, causing the cost to dramatically increase in comparison to company A.

The Coverage Gap and the different stages of Medicare Part-D coverage

Part D plans in 2026 have three stages, and the coverage gap (the donut hole) is gone. First, the deductible stage: if your plan has one, you pay full price until you have paid it (plans may charge up to $615; many charge less or nothing). Second, initial coverage: you pay a copay or coinsurance set by the tier your drug is in, and the plan pays the rest. Third, catastrophic coverage: once what you have paid out of pocket for covered drugs reaches $2,100, you pay $0 for covered Part D drugs for the rest of the year.

The stages reset every January 1. If a large bill lands early in the year, the Medicare Prescription Payment Plan lets you spread it over the remaining months with no interest. Source: Medicare.gov.

1. Deductible Stage: The deductible stage is pretty self explanatory. If your plan has a deductible, you must first meet that deductible before receiving coverage. This will vary by plan.
2. Initial Coverage: The initial coverage stage is pretty self explanatory also. In this stage, you pay a set copay depending on the tier the prescription is placed in, and the insurance company pays the rest of the cost.
3. The Coverage Gap: Formerly known as the Donut Hole, the Coverage Gap can be explained as a point where if the total cost of your medications (what you pay and what the insurance pays combined) reaches a certain amount, you enter the coverage gap and your coverage is reduced. In 2023, that amount is $4660 throughout the year. Once you are in the coverage gap, you will be faced with paying 25% of your medication costs.
4. Catastrophic Coverage: The 4th and final stage is what is known as Catastrophic Coverage. In this final stage, once you have paid $7440 over the course of the year, you will enter this final stage. Once in this final stage, you will pay either $4.15 for generic medications and $10.35 for brand name prescriptions or 5% of the cost, whichever is greater.

It is important to know that these stages reset back to stage one once a new calendar year has begun. Sometimes it is difficult for people on Medicare to deal with their medication costs while in the Coverage Gap, but we have compiled a small list in the video below of some alternatives that can be used during that difficult time.