What Is Medicare Part D? Drug Coverage Explained

Prescription drug coverage is one of the most complex pieces of the Medicare puzzle. Medicare Part D, added to Medicare in 2006, provides prescription drug benefits — but the coverage, costs, and access rules vary enormously from plan to plan. Here's what you need to know, including what to do when your drug is denied.

What Is Medicare Part D?

Medicare Part D is the federal prescription drug benefit program for Medicare beneficiaries. Coverage is provided exclusively through private insurance companies approved by Medicare, not through original Medicare itself.

You get Part D coverage in one of two ways:

• Standalone Prescription Drug Plan (PDP): Paired with original Medicare (Parts A and B) or Medigap. You enroll in a separate PDP.
• Medicare Advantage Prescription Drug Plan (MA-PD): Part D coverage bundled into a Medicare Advantage plan.

Every Part D plan must cover a minimum set of drugs (defined by Medicare), but plans have flexibility to organize coverage differently. This means two Part D plans can cover the same drugs at very different costs.

Understanding Formularies and Tiers

The formulary is the plan's list of covered drugs. Each drug on the formulary is assigned a tier, and your cost-sharing (copay or coinsurance) is determined by the tier.

Typical tier structure:

• Tier 1: Preferred generics — lowest cost, often $0–$10
• Tier 2: Non-preferred generics — low cost
• Tier 3: Preferred brand-name drugs — moderate cost
• Tier 4: Non-preferred brand-name drugs — higher cost
• Tier 5: Specialty drugs — highest cost (often 25–33% coinsurance)

Drugs not on the formulary are generally not covered at all — unless you qualify for an exception.

The Coverage Gap (Donut Hole)

The "donut hole" is a coverage gap that was a major source of confusion and expense for Part D enrollees for many years. The Inflation Reduction Act of 2022 substantially reformed Part D beginning in 2025:

2025 Part D Structure:

• Deductible phase: You pay 100% of drug costs up to the deductible ($590 maximum in 2025)
• Initial coverage phase: You pay standard cost-sharing until total drug costs reach $2,000
• Catastrophic phase: After $2,000 in out-of-pocket costs, the plan pays 100% — the donut hole is effectively eliminated for 2025

This is a significant improvement from prior years when enrollees could face substantial costs in the coverage gap.

Low-Income Subsidy (Extra Help / LIS)

People with limited income and resources may qualify for the Low-Income Subsidy (LIS), also called "Extra Help." This federal program reduces Part D premiums, deductibles, and cost-sharing significantly — in some cases to $0 for generics and minimal amounts for brand-name drugs.

If your income is below 150% of the Federal Poverty Level, you may qualify. Apply through Social Security or Medicaid.

Common Part D Denial Reasons

1. Drug not on formulary. Your doctor prescribed a drug the plan doesn't cover. Solution: request a formulary exception (see below) or ask your doctor about a covered alternative.

2. Prior Authorization Denied: How to Appeal" class="auto-link">Prior authorization required. The plan requires advance approval before covering certain drugs — typically high-cost or high-risk medications. Your pharmacist will tell you if PA is required.

3. Step therapy (step edit). The plan requires you to try and fail a cheaper medication before authorizing the one your doctor prescribed. Your doctor may be able to override this with documentation that the first-line drugs are contraindicated for you.

4. Quantity limits. The plan limits how much of a drug you can fill at once. If your prescription is for a higher quantity than the plan allows, the excess is denied.

5. Drug in a different coverage phase. Your plan may cover a drug but only under specific conditions tied to your coverage phase or the prescribing indication.

Part D Exceptions: What You Can Request

If your drug is denied, you have the right to request exceptions:

Formulary exception: Request that the plan cover a non-formulary drug. Your doctor must provide documentation that the covered alternatives are ineffective, contraindicated, or likely to cause adverse effects for you specifically.

Tiering exception: Request that a higher-tier drug be covered at a lower-tier cost-sharing level. Your doctor provides clinical justification.

Coverage determination: A formal request for the plan to cover a specific drug for a specific indication. The plan must respond within 72 hours (standard) or 24 hours (expedited).

The 5-Level Part D Appeal Process

If your coverage determination or exception request is denied, you have five levels of appeal:

Level 1: Redetermination. File within 60 days of denial. The plan reviews its own decision. Response within 7 days (standard) or 72 hours (expedited).

Level 2: Independent Review Entity (IRE). If the plan upholds its denial, your case can be escalated to the IRE. The IRE is an independent organization contracted by CMS — not the plan. They must respond within 7 days (standard) or 72 hours (expedited). This escalation can be automatic.

Level 3: ALJ Hearing. If the amount in dispute is at least $190 (2025), you can request an ALJ hearing within 60 days of the IRE decision. Typically conducted by telephone.

Level 4: Medicare Appeals Council. Within 60 days of the ALJ decision.

Level 5: Federal District Court. Requires the amount in dispute to meet the statutory minimum (~$1,840 for 2025).

Note on expedited appeals: If waiting for a standard decision would seriously jeopardize your health, request an expedited review. The plan must respond within 24 hours.

Transition Fill Rights

If you're new to a Part D plan (just enrolled or changed plans during open enrollment), you have the right to a temporary supply of a covered drug — even if it requires prior authorization or is on a non-preferred tier — during the transition period. Plans must provide at least a 30-day supply to allow time for you or your doctor to request an exception.

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Related Reading:

• How to Write an Insurance Appeal Letter
• What Is Medical Necessity?
• Internal vs External Insurance Appeal