Medicare Drug Tiers: What They Are and How They Work

Tiers and the formulary: what they are

Every Medicare drug plan keeps a list of the drugs it will help pay for. That list is called the formulary. Each plan has its own formulary, so two different plans can cover different sets of drugs.

Within the formulary, most plans sort the drugs into tiers (levels). A tier is simply a cost group. As a rule, a drug on a lower tier costs you less out of pocket than a drug on a higher tier. The formulary is the 'what's covered' list; the tier tells you 'how much it will cost.'

This is the key difference many people miss: being on the formulary means the plan covers the drug at all; the tier decides how much you pay for it.

What goes in each tier

Plans can divide their tiers differently, but a typical Medicare drug plan looks something like this. Always check your own plan's tier chart, because the exact number of tiers and which drug lands where varies plan by plan.

• Tier 1 (lowest copay): most generic prescription drugs.
• Tier 2 (medium copay): preferred brand-name drugs the plan has chosen to favor.
• Tier 3 (higher copay): non-preferred brand-name drugs.
• Specialty tier (highest cost-sharing): very high-cost drugs, often for complex conditions.
• Some plans add extra tiers (for example, a preferred-generic tier or a select-care tier) and split things further.

Copay vs. coinsurance: why two plans with the same tiers cost differently

How a tier charges you matters as much as the tier number itself. Lower tiers usually use a flat-dollar copayment (for example, a set dollar amount per fill). Higher tiers and the specialty tier more often use coinsurance, which is a percentage of the drug's price.

Because of this, the same tier structure can mean very different out-of-pocket amounts. A flat copay stays predictable, but a percentage of an expensive drug can be a large bill. This is also why the exact same drug can cost different amounts on different plans: each plan sets its own tier for that drug and its own copay or coinsurance for that tier.

The specialty tier, and changes during the year

The specialty tier holds very high-cost drugs and carries the highest cost-sharing, frequently as coinsurance. That is why a specialty-tier drug can feel so expensive: you may pay a percentage of a very large price.

A plan can also change its formulary during the year under Medicare guidelines, for example when drug therapies change, new drugs are released, or new medical information becomes available. That can mean a drug moves to a different tier or, in some cases, is no longer on the list. Plans must follow Medicare's rules for how and when they make these changes and how they notify members.

Coverage rules and how to ask for an exception

Beyond tiers, Part D plans can attach rules to certain drugs, known as utilization-management rules:

• Prior authorization: the plan must approve the drug before it will cover it.
• Step therapy: you must try a lower-cost drug first before the plan covers a more expensive one.
• Quantity limits: the plan limits how much of a drug it covers over a set period.
• Tiering exception: a request to pay for a non-preferred (higher-tier) drug at the lower cost-sharing of a preferred (lower) tier. Your prescriber must provide a statement that the preferred drug(s) would not be as effective for you and/or would cause adverse effects.
• Formulary exception: a request to cover a drug that is not on the plan's list, or to waive a rule like step therapy, prior authorization, or a quantity limit. Plans grant these when they determine the drug is medically necessary.

Drugs that must be covered: the six protected classes

Medicare requires Part D plans to include on their formularies essentially all drugs in six 'protected' classes. This protects people who rely on these medications.

Prior authorization or step therapy may only apply to people newly starting a drug in five of the six classes; none of those rules may be applied to antiretrovirals.

• Antidepressants
• Antipsychotics
• Anticonvulsants
• Immunosuppressants (for transplant rejection)
• Antiretrovirals
• Antineoplastics (cancer drugs)

How tiers fit into the 2026 Part D coverage stages

Your tier copay or coinsurance operates inside the larger Part D benefit, which moves through stages during the year.

Deductible stage: in 2026 a plan's deductible may be no more than $615. Some plans charge less or none. Until you meet any deductible, you may pay the full negotiated price for your drugs.

Initial coverage stage: after any deductible, you generally pay about 25% coinsurance for covered generic and brand-name drugs; your plan's per-tier copay or coinsurance applies within this structure.

Catastrophic stage: once your out-of-pocket spending reaches $2,100 in 2026, you pay nothing for covered Part D drugs for the rest of the year.

For context on premiums: the 2026 Part D national base beneficiary premium is $38.99 per month, and the late-enrollment penalty is 1% of $38.99 times the number of full months you went without coverage, rounded to the nearest $0.10, added for as long as you have Part D.

How to check tiers and lower your costs

• Before you enroll, look up each of your drugs in the plan's formulary or tier chart to see which tier it falls on and what the copay or coinsurance is.
• Compare plans on the official Medicare Plan Finder at Medicare.gov, entering your exact drugs and pharmacies; the same drug can be a different tier and price on each plan.
• Ask your prescriber whether a lower-tier generic or preferred brand would work for your condition.
• If your drug is on a high tier, ask the plan for a tiering exception; if it is not covered or has a rule you cannot meet, ask for a formulary exception.
• If none of the plan's listed drugs will work for your condition, you or your prescriber can request an exception.
• If you have limited income and resources, you may qualify for Extra Help (the Low-Income Subsidy), which lowers Part D costs. You can also ask your plan about the Medicare Prescription Payment Plan to spread your out-of-pocket drug costs across the year.