Creditable Prescription Drug Coverage Explained
Creditable prescription drug coverage is drug coverage that’s expected to pay, on average, at least as much as Medicare’s standard Part D prescription drug coverage.
Medicare Part D Tiers, Copays and Coinsurance Explained
Last Modified: 10/02/2026 | Reviewed by Keith Armbrecht (NPN 634015)
Quick Summary
Medicare drug plans commonly divide covered medications into tiers, with lower-tier drugs generally costing less and higher-tier drugs generally costing more.
Your cost may be:
A copay — a fixed dollar amount
or:
Coinsurance — a percentage of the drug’s negotiated price.
Each Part D plan sets its own formulary and tier structure within Medicare rules.
Key Facts
- Plans don’t all use identical tier structures.
- Lower tiers typically contain lower-cost drugs.
- Higher tiers generally cost more.
- Generic drugs are often on lower tiers.
- Specialty drugs are often on high tiers.
- Copays are fixed dollar amounts.
- Coinsurance is a percentage.
- Preferred pharmacies can reduce costs.
- Tier exceptions may sometimes be requested.
- Formularies and tier placements can change.
Example of Drug Tiers
A plan might use:
Tier 1
Preferred generics
Example cost:
$0 or low copay
Tier 2
Other generic or preferred medications
Tier 3
Preferred brand-name drugs
Tier 4
Non-preferred medications
Specialty Tier
Very high-cost medications
Your plan may organize tiers differently.
What Is a Copay?
A copay is a fixed amount.
Example:
Prescription price under your plan:
$10 copay
You pay:
$10
subject to applicable benefit rules.
What Is Coinsurance?
Coinsurance is a percentage.
Example:
Negotiated drug price:
$500
Your coinsurance:
25%
Your cost:
$125
subject to applicable Part D rules.
Why Specialty Drugs Can Be Expensive
A high-cost medication may use percentage coinsurance rather than a small fixed copay.
That’s why someone taking expensive medication should look beyond a plan’s monthly premium.
Can You Ask for a Lower Tier?
In certain circumstances, you or your prescriber may request a:
Tiering exception
asking the plan to cover a higher-tier medication at lower cost sharing.
The plan isn’t required to approve every request, and some drug categories aren’t eligible for tiering exceptions.
2026 Out-of-Pocket Protection
For 2026, qualifying out-of-pocket spending for covered Part D drugs is capped at:
$2,100
After reaching that amount, beneficiaries generally owe $0 for covered Part D drugs for the remainder of the calendar year.
Video Explanation from Keith
Medicare Drug Tiers Explained
Keith's Take
This is why two drug plans with similar premiums can produce completely different annual costs.
Your $500 medication might be:
Tier 2 in one plan
and:
Tier 4 in another.
The premium difference might be only $10 a month while the prescription-cost difference is hundreds or thousands of dollars.
Always compare the medication—not just the plan.
Keith Armbrecht
Medicare on Video
Frequently Asked Questions
Q. What is a drug tier?
A. A cost category on a Medicare plan's formulary.
Q. Are Tier 1 drugs cheaper?
A. Generally, yes.
Q. What is a copay?
A. A fixed dollar amount.
Q. What is coinsurance?
A. A percentage of the drug's cost.
Q. Are tier structures the same in every plan?
A. No.
Q. Can I request a tier exception?
A. Sometimes.
Q. What's the Part D out-of-pocket cap in 2026?
A. $2,100 for covered Part D drugs.
Official Government Sources
Explore Related Guides
Medicare Part D Formulary Explained: Is Your Prescription Covered?
A Medicare Part D formulary is the drug plan’s list of covered prescription medications.
