By Christian BrinkleyLicensed NC Insurance Agent, NPN 22217190, NC Life & Health · Updated October 14, 2026 · 4 min read
Medicare Part D is the part of Medicare that covers prescription drugs. It is optional, but it matters. Even if you take no prescriptions today, having Part D protects you from high drug costs later and from a penalty that sticks around. Part D plans are sold by private insurers approved by Medicare. You can get Part D as a stand alone plan with Original Medicare, or as part of most Medicare Advantage plans. Details vary by plan, but the structure is the same.
How Part D Works
Every Part D plan has a formulary, the list of covered drugs. The formulary says which drugs are covered, what tier each drug is on, and what rules apply, such as prior authorization or step therapy. If your drug is not on the formulary, the plan will not cover it unless you get an exception.
What Tiers Mean
Tiers group drugs by cost. Lower tiers are cheaper. Higher tiers cost more.
Tier 1 is usually preferred generics, the lowest cost. Tier 2 is usually generics, still low cost. Tier 3 is usually preferred brand drugs, which cost more. Tier 4 is usually non preferred drugs, costing more than Tier 3. Tier 5 is usually specialty drugs for complex conditions like cancer or rheumatoid arthritis, often with coinsurance where you pay a percentage rather than a flat copay.
The Coverage Phases
Part D moves through phases each year, resetting every January 1.
First is the deductible phase, if your plan has one. You pay full cost until you meet the deductible. Some plans have no deductible or none for lower tiers.
Next is the initial coverage phase. After the deductible, you pay copays or coinsurance and the plan pays its share, until total drug costs reach a set limit.
The Part D Late Enrollment Penalty
If you go 63 days or more without Part D or other creditable drug coverage after you are first eligible, you may owe a late enrollment penalty. Creditable coverage means drug coverage at least as good as standard Part D, such as from a current employer or the VA.
The penalty is 1 percent of the national base beneficiary premium for each month you went without creditable coverage. It is added to your Part D premium every month, for as long as you have Part D. It is not a one time fee.
How to Pick a Part D Plan
Use the Medicare Plan Finder at medicare.gov. Enter your exact drugs, dosages, and pharmacy. It shows your estimated total yearly cost per plan, including premium, deductible, copays, and gap costs.
If Your Drug Is Not Covered
You have options. Ask your doctor if a covered drug would work. Ask the plan for a formulary exception. Appeal if the exception is denied. Or switch plans during Annual Enrollment to one that covers your drug. If you get a denial, read the letter. It tells you how to appeal and the deadline.
Getting Help
Your state SHIP program offers free, unbiased help. In North Carolina, it is called SHIIP. You can also call 1-800-MEDICARE or talk to a local licensed insurance agent who can run a Plan Finder comparison with your actual prescriptions.
Remember: get Part D when first eligible or keep other creditable coverage, compare plans on your own drugs and pharmacy, and recheck every fall. Your drugs change and plans change. A quick check each year can save real money.
This article is general information only. It is not personal advice or a recommendation about any specific plan.
Questions people ask me about this
How does Part D work?
Every Part D plan has a formulary, the list of covered drugs. The formulary says which drugs are covered, what tier each drug is on, and what rules apply, such as prior authorization or step therapy. If your drug is not on the formulary, the plan will not cover it unless you get an exception.
What do tiers mean?
Tiers group drugs by cost. Lower tiers are cheaper. Higher tiers cost more. Tier 1 is usually preferred generics, the lowest cost. Tier 2 is usually generics, still low cost. Tier 3 is usually preferred brand drugs, which cost more. Tier 4 is usually non preferred drugs, costing more than Tier 3.
What are the coverage phases?
Part D moves through phases each year, resetting every January 1. First is the deductible phase, if your plan has one. You pay full cost until you meet the deductible. Some plans have no deductible or none for lower tiers. Next is the initial coverage phase.
What is the Part D late enrollment penalty?
If you go 63 days or more without Part D or other creditable drug coverage after you are first eligible, you may owe a late enrollment penalty. Creditable coverage means drug coverage at least as good as standard Part D, such as from a current employer or the VA.
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