Medicare Part D covers prescription drugs. Oftentimes, plans place drugs into tiers to help beneficiaries save money.

Medicare Part D plans are provided by Medicare-approved private insurance companies. People with Original Medicare (Part A and Part B) can purchase stand-alone Part D plans. Most Medicare Advantage plans include prescription drug coverage (Part D).

Each Part D plan has a drug list (formulary) of the medications it covers. The insurance company may divide these medications into tiers to help reduce costs. Each company can set its own tiers in any way it sees fit. Generally, prescriptions in lower tiers will cost you less.

Glossary of common Medicare terms

  • Out-of-pocket cost: This is the amount you pay for care when Medicare doesn’t pay the full cost or offer coverage. It includes premiums, deductibles, coinsurance, and copayments.
  • Premium: This is the monthly amount you pay for Medicare coverage.
  • Deductible: This is the annual amount you must spend out of pocket before Medicare begins to cover services and treatments.
  • Coinsurance: This is the percentage of treatment costs you’re responsible for paying out of pocket. With Medicare Part B, you typically pay 20%.
  • Copayment: This is a fixed dollar amount you pay when receiving certain treatments or services. With Medicare, this often applies to prescription medications.

Generic drugs are copies of brand-name drugs. However, they are the same in all the following ways:

  • safety
  • strength
  • dosage form
  • quality
  • route of administration
  • intended use
  • performance characteristics

The makers of generic drugs must prove to the Food and Drug Administration (FDA) that their product works in the same way as the brand-name version.

Some Part D insurance providers may refer to the generic tier as “tier 1.” Generic medications tend to be in the lowest tiers and typically cost less than brand-name drugs.

Cost sharing

Costs may vary by plan, pharmacy, and area. According to the nonprofit KFF, the median out-of-pocket cost for generic drugs in 2025 is $0 for preferred generics and $5 for all other generics.

Preferred brand drugs are medications that may not have generic equivalents. These drugs may have been on the market for quite some time and are widely accepted.

They may also be particular brands on an insurance provider’s formulary that it encourages people to use. The provider may do this by offering these medications at a lower copay than similar ones.

Some insurance providers may refer to this as “tier 2.” Prescriptions in this tier tend to have a slightly higher copay than those in the generic tier (tier 1).

Cost sharing

According to KFF, the median copayment for preferred brand drugs in 2025 is $47. However, preferred brand drugs may have a coinsurance payment instead. If this is the case, the median coinsurance amount is 20% to 24% of the total cost.

»Learn more: Medicare drug lists

Non-preferred drugs are either brand-name or generic medications that are not listed in the preferred tier in an insurance provider’s formulary. These medications may be newer to the market.

Typically, medications in the non-preferred tier have higher copayments or coinsurance costs. Some insurance providers may refer to this as “tier 3.”

If your doctor or other healthcare professional prescribes a non-preferred brand-name drug for you, ask them if there is a generic drug available. It is possible that the generic drug may be covered under the lower tier.

Cost sharing

According to KFF, 43% of people with a Part D plan included in their Medicare Advantage plan pay a median copayment of $100 for non-preferred prescriptions. People with stand-alone Part D plans pay a median coinsurance rate of 40% of the total cost.

Prescriptions may be put into a specialty drug tier because they:

  • have a high cost
  • require special handling
  • treat complex conditions

Medications in this tier typically have the highest copayments or coinsurance costs.

Cost sharing

KFF notes that the median coinsurance cost for specialty tier drugs in 2025 is 25% to 30% of the total cost.

Other Part D costs

  • Premium: Part D plans may have a monthly premium that you are responsible for paying, in addition to the Part B premium of $185.
  • Deductible: Deductibles vary by plan. However, in 2025, a plan’s deductible cannot exceed $590.

Once your out-of-pocket costs reach $2,000, you automatically enter catastrophic coverage. This means you will pay nothing for your prescriptions for the rest of the year.

»Learn more: Medicare Part D costs

Medicare Part D plans provide prescription drug coverage. These plans are offered by Medicare-approved insurance companies.

Each Part D plan has a formulary that lists all the medications that are covered. Most insurance providers divide their formularies into tiers. This helps reduce your costs.

Generic tiers typically have the lowest copay amounts, while specialty tiers have the highest cost-sharing amounts.