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Medicare Part D Explained: Prescription Drug Coverage

Updated January 2026 · 10 min read

Your parent is on Medicare. They need prescription medications. But how does Part D actually work? What does it cost? And how do you choose the right plan?

Here's everything you need to know about Medicare Part D in plain English.

What Part D Is

Medicare Part D is optional prescription drug coverage. It's not included in Original Medicare (Parts A and B). You either add a standalone Part D plan to Original Medicare, or you get drug coverage through a Medicare Advantage plan that includes Part D.

How Part D Costs Work

Part D has multiple cost components:

1. Monthly Premium

What you pay each month just to have the plan. Premiums vary widely by plan—from $0 to $100+ per month. Higher premiums don't always mean better coverage for your specific medications.

2. Annual Deductible

What you pay out-of-pocket before coverage kicks in. In 2026, the maximum Part D deductible is $590. Many plans have lower or no deductibles.

3. Copays/Coinsurance

What you pay at the pharmacy for each prescription. This varies by drug tier (see below).

4. Coverage Gap (Donut Hole)

A phase where you pay more after reaching a spending threshold. Major changes have reduced this burden (explained below).

The Four Coverage Phases

Part D coverage changes as you spend more on drugs throughout the year:

Phase 1: Deductible

$0 - $590 (2026)

You pay 100% of drug costs until you reach your plan's deductible. Some plans have $0 deductibles. Some drugs may be covered even before meeting the deductible.

Phase 2: Initial Coverage

After deductible - $5,030 total drug costs

You pay copays or coinsurance based on your drug's tier. The plan pays the rest. This is where most people spend most of the year.

Phase 3: Coverage Gap (Donut Hole)

$5,030 - $8,000 out-of-pocket

Good news: Starting in 2025, the out-of-pocket cap means you won't pay more than $2,000 per year. Once you hit $2,000 in out-of-pocket costs, you enter catastrophic coverage.

Phase 4: Catastrophic Coverage

After $2,000 out-of-pocket (new 2025 cap)

You pay $0 for covered drugs for the rest of the year. This is a major improvement from previous years when you still paid a percentage.

Big Change: $2,000 Annual Cap

Starting in 2025, Medicare Part D has a $2,000 annual out-of-pocket maximum. Once your parent pays $2,000 in a year, covered prescriptions are free for the rest of that year. This is a huge help for people with expensive medications.

Drug Tiers Explained

Part D plans categorize drugs into tiers, with different costs for each:

Tier Drug Type Typical Cost
Tier 1 Preferred generics $0-$15
Tier 2 Non-preferred generics $15-$30
Tier 3 Preferred brand-name $30-$50
Tier 4 Non-preferred brand-name $50-$100
Tier 5 Specialty drugs 25-33% coinsurance

Important: Each plan has its own formulary (list of covered drugs) and tier assignments. The same drug might be Tier 2 on one plan and Tier 4 on another.

How to Choose a Part D Plan

Step 1: List All Medications

Write down every prescription drug your parent takes, including:

Step 2: Use Medicare's Plan Finder

Go to Medicare.gov and use the Plan Finder tool. Enter your parent's medications and preferred pharmacy to compare plans based on their actual drug needs.

Step 3: Check the Formulary

Make sure all their medications are covered by the plan. If a drug isn't on the formulary, they'll pay full price.

Step 4: Consider Total Annual Cost

Don't just look at premiums. Calculate:

Step 5: Check Pharmacy Networks

Make sure their preferred pharmacy is in the plan's network. Mail-order pharmacies often offer savings.

Review Plans Every Year

Part D plans change their formularies, tiers, and costs every year. What was the best plan last year may not be best this year. Use the annual enrollment period (October 15 - December 7) to compare and switch if needed.

When to Enroll

Initial Enrollment Period

7-month window around 65th birthday (3 months before, birthday month, 3 months after). Sign up when first eligible to avoid penalties.

Annual Enrollment Period

October 15 - December 7 each year. You can switch plans for coverage starting January 1.

Special Enrollment Periods

Triggered by life events like moving, losing other coverage, or qualifying for Extra Help.

Late Enrollment Penalty

If your parent goes without Part D or equivalent drug coverage for 63+ days, they'll pay a permanent penalty (1% of the national base premium × number of months without coverage). This penalty is added to their premium for life.

Extra Help (Low-Income Subsidy)

If your parent has limited income and resources, they may qualify for Extra Help, which pays most Part D costs:

Apply through Social Security (ssa.gov) or your State Health Insurance Assistance Program (SHIP).

Getting Help

Medicare Navigator Worksheet

Track medications, compare plans, and organize Medicare information with our free worksheet.

Get the Worksheet

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