Prescription Drug Plans (Part D) – Formularies & Tiers

Medicare Part D is your prescription drug coverage—and choosing the right plan is one of the most consequential and frequently underappreciated Medicare decisions you'll make. The wrong plan can cost you hundreds or even thousands of dollars more per year on medications you take every month. The right plan, chosen carefully, can make your drugs genuinely affordable.

Here's what you need to understand about how Part D plans work, what formularies and tiers mean for your wallet, and how to find the plan that fits your specific situation.

Part D plans are offered by private insurance companies approved by Medicare. You choose a plan, pay a monthly premium, and use the plan to cover your prescription costs. The plan has its own list of covered drugs (the formulary), its own cost-sharing structure, and its own network of pharmacies.

If you're enrolled in Original Medicare (Parts A and B), you add a standalone Part D plan. If you're enrolled in Medicare Advantage, drug coverage is usually bundled in—though not always, so verify before assuming.

A formulary is simply the list of drugs a plan covers. Not every plan covers every drug. Before choosing a plan, you need to verify that your specific medications—the exact drug names, dosages, and forms you take—are on the formulary.

Formularies can change from year to year. A drug that was covered on your plan last year may be moved to a higher tier, require prior authorization, or be removed from the formulary entirely. This is exactly why the Annual Enrollment Period review matters—more on that below.

Every Part D plan organizes its formulary into tiers, with different cost-sharing at each tier. More tiers means more nuance, but the basic structure is consistent:

The tier your specific drug falls into determines your cost—not just whether the drug is covered. A brand-name drug on a plan's Tier 3 (preferred) will cost significantly less than the same drug on a different plan's Tier 4. This is why comparing plans based on your actual drug list is essential.

One of the most significant recent improvements to Part D is the $2,000 annual out-of-pocket cap on drug costs, which took effect in 2025 under the Inflation Reduction Act. Before this change, people on expensive specialty medications had no cap and could spend tens of thousands of dollars per year on drugs.

Now, once you've paid $2,000 in out-of-pocket drug costs in a calendar year, your plan covers 100% of your covered drug costs for the rest of the year. For people taking specialty medications for cancer, autoimmune conditions, or other serious illnesses, this cap is genuinely life-changing.

Two plan rules that frequently frustrate beneficiaries:

Prior Authorization

Some drugs require your doctor to get advance approval from the plan before it will cover them. This doesn't mean the drug won't be covered—it means the plan wants documentation that it's medically necessary. Your doctor's office typically handles this process, but it takes time and occasionally requires appeals.

Step Therapy

Some plans require you to try a lower-cost drug first (often a generic or preferred brand) before they'll cover a more expensive medication—even if your doctor has already prescribed the higher-tier drug. This is called step therapy or "fail first" requirements. If step therapy applies to one of your medications, your doctor may need to document that alternatives are inappropriate for your situation.

The single most important tool for choosing a Part D plan is Medicare's Plan Finder at medicare.gov/plan-compare. Enter your zip code and your complete list of medications (drug name, dosage, frequency), and the tool shows you estimated annual costs for every available plan in your area—side by side.

The plan with the lowest monthly premium is rarely the best choice. Look at total estimated annual cost, which includes premium, deductible, and copays based on your actual drug list. The difference between the highest and lowest cost plans for the same person can easily exceed $1,000 per year.

Part D plans can change their formularies, tiers, premiums, and pharmacy networks every January 1. Medicare's Annual Enrollment Period runs from October 15 to December 7, allowing you to switch plans for the following year.

Every fall, review your plan's Annual Notice of Change (sent to you by your plan in September). Check whether your medications are still covered and at what tier. Then run the Plan Finder comparison again—a plan that was optimal last year may no longer be your best option this year.

It only takes 30 minutes and could save you hundreds of dollars. Make it an annual habit.