Each Medicare Prescription Drug plan (PDP) has a unique formulary and tier structure that determines what you pay for specific prescriptions. The formulary, tier level, and type of copay can cause your specific prescription costs to vary among different plans. What phase you're in (for example, coverage gap, catastrophic coverage) can also greatly affect what your out-of-pocket cost is for your drugs. Because of this, it's important to compare premiums, deductibles, and copays when choosing a PDP.

You can use Shop & Compare to search for plans and compare drug costs by selecting Cost Estimate for a plan you're considering.

Formulary, Drug Tiers, and Copays
Premium
Prescription Drug Plan Phases
Lowering Drug Costs

Formulary

A formulary is a list of prescription drugs covered by an insurance plan. This list can change throughout the year. The formulary is divided into cost tiers based on the cost to the insurance carrier. Call your insurance carrier to learn what's covered on the formulary.

Drug Tiers

Each insurance carrier negotiates the price of each drug with the manufacturer. If a carrier receives a good discount on one drug, but not on a competing drug used to treat the same condition, the carrier charges a lower copay for the discounted (preferred tier) drug and a higher copay for the more expensive (non-preferred tier) drug.

Because different insurance carriers pay different prices for the same drug, they may place the same drug in different tiers depending on its cost or availability. This can result in price differences among carriers.

Copays

Depending on the tier, carriers can charge a percentage of the drug's cost (coinsurance) or a set dollar amount (copay), which can cause a large difference depending on the retail cost of the drug.

You may also pay a different copay depending on whether you use mail-order or a walk-in pharmacy.

PDPs charge a monthly fee that varies by plan. You pay this in addition to the Medicare Part B premium. If your income is above a certain amount, you may pay a Part D Income Related Monthly Adjustment Amount (Part D-IRMAA).

Note: If you don't sign up for a prescription drug plan when you're first eligible, you may have to pay a Part D late enrollment penalty.

For 2025 updates, read Medicare Prescription Costs in 2025.

PDPs all have the same basic plan structure. There are four phases that determine how much you pay for your prescription drugs.

Your PDP's monthly Explanation of Benefits (EOB) includes information on your current phase and how far you are from the coverage gap phase (also call the “donut hole”).

Not everyone enters the coverage gap or catastrophic coverage phase. Our licensed benefit advisors* alert you if it appears you could enter the coverage gap based on your current medication estimates.

Phase 1 – Maximum Initial Deductible

You're responsible for the full retail drug costs until you reach your plan’s deductible amount. Deductibles vary among PDPs. Plans can have a maximum deductible of $545 in 2024. Only prescription drug costs go toward the deductible. If you use a discount card, those costs don't count toward the plan phases.

Phase 2 – Initial Coverage Limit (ICL)

Once you've met your deductible, you move in to the initial coverage phase. You're responsible for your copay or coinsurance when you have your prescriptions filled. The ICL is $5,030 in 2024.

Phase 3 - Coverage Gap (Donut Hole)

You're in the coverage gap once the total cost of your prescription drugs, including payments you and your insurance carrier made reaches, $5,030 in 2024.

You pay no more than 25% of the cost for your plan's covered brand-name prescription drugs until your out-of-pocket spending is $8,000 under the standard drug benefit for 2024.

All PDPs have the coverage gap, although some plans offer additional discounts during the gap, usually applied to generic medications.

Your monthly premium and the amount your insurance carrier paid for your prescription drugs before entering the coverage gap don't count toward your total out-of-pocket cost. Expenses included in your total out-of-pocket cost are your:

Yearly deductible (if you have one)
Total prescription coinsurance or copays
Prescription costs incurred while in the coverage gap (including the 70% discount for brand-name drugs)

Phase 4 - Catastrophic Coverage

Once you spend $8,000 out-of-pocket in 2024, you enter the catastrophic coverage phase. You will automatically get catastrophic coverage. Catastrophic coverage assures you only pay a small coinsurance percentage or copay for covered drugs for the rest of the year.

If you need additional help paying for your drug costs, there are several things we recommend:

Ask your doctor about lower cost options, for example, generics or over-the-counter drugs.
Ask your doctor about sample packs for your medication.
Explore national or community charitable programs: BenefitsCheckUp, National Organization for Rare Disorders (NORD).
Find a Pharmaceutical Assistance Program.
Find a State Pharmaceutical Assistance Program.
Apply for Extra Help or call 1-800-772-1213 or 1-800-MEDICARE (1-800-633-4227).

*Our benefit advisors are licensed insurance agents, trained and certified in the necessary skills to match you to an available plan in your area.

Medicare Prescription Costs in 2024