FAQ Friday: What is Medicare Part D?

Medicare Part D is Medicare’s drug coverage for prescriptions that you fill at a pharmacy. For example, the maintenance medications that you take home or if you are prescribed an antibiotic.

Every Medicare Part D drug plan has what is called a formulary that lists the medications covered by the plan. Each Medicare Part D drug plan has a different formulary. Within this formulary, there are typically five tiers.

Medicare Part D Tiers

Generally, Tier 1 is going to be the least expensive and tier 5 is going to be the most expensive. In each drug plans formulary, the tiers can be priced differently because they are covered differently. For example, if you take Crestor (a brand-name cholesterol pill), it may be considered a tier 4.  However, a different formulary may list the same drug as tier 3, making it more affordable.

You want to shop for the drug plan that covers your medications under the lowest tier so your drugs are more affordable.

Drug Tiers 1 – 5

Here’s an example of a Medicare drug plan’s tiers (your plan’s tiers may be different):

  • 1 – Preferred Generics
  • 2 – Generics
  • 3 – Preferred Brands
  • 4 – Non-Preferred
  • 5 – Specialty

There are 4 levels of drug coverage with each Part D plan. The first level is the deductible phase or deductible level for your plan. You pay the full cost of your medications until you reach your deductible. Most Part D drug plans will have a deductible which can vary from plan to plan; however, no plan’s deductible can be higher than $445 in 2021.

The second level is called the initial coverage level. During this level, you would only pay a copay or coinsurance for your medication. Tiers 1 and 2 are going to be really inexpensive, tier 3 is going to be reasonable, and tier 4 and 5 can get expensive. The initial coverage phase stops once your total drug costs is $4,130 in 2021.

Level 3 is the infamous “Donut Hole” that most people have heard about. Once you and your plan have spent $4,130 on coverage drugs in 2021, you’re in the coverage gap. Then you would have to pay around 45% of your brand-name drug costs and around 80% of your generic costs. However, the coinsurance in 2021 is now 25%.

The last level is level 4 which is called the catastrophic level. At this point, you have spent $6,550 out-of-pocket on the formulary. Then the government steps in and subsidize both costs for you. Usually, you may pay around 5% for all of your medications.

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Last Updated on July 23, 2021 by Brian Kondas