Understanding Drug Tiers & Copays

Why does one prescription cost you $5 while another costs $80, even with the same Medicare drug plan? The answer is drug tiers.

If you've ever looked at your Part D plan and felt confused about why your medications cost what they do, you're not alone. Understanding drug tiers and how copays work can make a real difference in what you pay and which plan you choose.

As always, the SGIA Medicare Benefit Consultants are here to help you understand, enroll in, and switch your Part D plan.

What are Drug Tiers?

Many Part D plans place drugs into different "tiers" or levels on their drug lists to help lower costs. Generally, a drug in a lower tier costs you less than a drug in a higher tier. Most plans use a 5-tier structure, though the exact setup can vary by plan. Here is a typical example of drug tiers:

• Tier 1: Preferred generic drugs

• Tier 2: Non-preferred generic drugs

• Tier 3: Preferred brand-name drugs

• Tier 4: Non-preferred brand-name drugs

• Tier 5/Specialty Tier: Very high-cost drugs

The key takeaway: the tier your drug is in determines how much you pay, not necessarily how important or effective the drug is. The out-of-pocket maximum does apply to all tiers.

Copays vs. Coinsurance: What's the Difference?

These two terms often get mixed up, but they work very differently:

• A copay is a flat dollar amount you pay each time you fill a prescription. For example, $10 for a Tier 1 generic, and the amount stays the same regardless of what the drug actually costs.

• Coinsurance is a percentage of the drug's total cost that you pay. For example, if a Tier 3 drug costs $400 and your coinsurance is 25%, you'd owe $100. This matters a lot for higher-cost drugs, because the dollar amount you pay goes up as the drug price goes up. It also matters what pharmacy you use because different pharmacies have different costs.

Generally, copays are more common on lower tiers (Tier 1 and 2), and coinsurance is more common on higher tiers (Tier 3, 4, and specialty).

Part D Out-of-Pocket Cap

In 2026, your out-of-pocket costs for Part D are capped at $2,100 for the year. Once you hit that amount, including your deductible, copays, and coinsurance, you pay $0 for covered drugs for the rest of the year. This is a significant protection, especially for people who take high-cost or specialty medications.

What About Extra Help?

If you have limited income and resources, you may qualify for Extra Help (also called the Low-Income Subsidy). This Medicare program helps pay Part D premiums, deductibles, and cost sharing.

In 2026, people who qualify for Extra Help typically pay no more than $5.10 for generic drugs and $12.65 for brand-name drugs, regardless of what tier those drugs are on. Your SGIA Benefit Consultant can help you know if you qualify for Extra Help.

• The income limit to qualify for Low-Income Subsidy for individuals is $23,940

• The income limit to qualify for Low-Income Subsidy for married couples is $32,460

• To learn more about Low-Income Subsidy for Medicare Part D, contact your SGIA Benefit Consultant or click this link

Can You Change Your Tier Placement?

In some cases, yes. If your prescriber believes you need a drug that's in a higher tier, you or your doctor can request a tiering exception: asking the plan to cover that drug at a lower cost-sharing level. Your doctor will need to provide a supporting medical statement.

The Bottom Line:

Don't just look at a plan's premium when comparing Part D options. Check where your specific medications land on each plan's tier structure, that's often where the real cost difference lies. Your SGIA Benefit Consultant can help you compare plans based on your unique medications to determine the best Prescription Drug plan or Medicare Advantage plan for you.

Questions about your drug costs or coverage? Your SGIA Benefit Consultant is here to help you every step of the way. Call us today at 888-284-3314 or visit sgiamedicare.com.