Medicare Glossary

Brand-name drug

A prescription drug sold under its trademarked name. Brand-name drugs are typically more expensive than generic alternatives and may be in a higher formulary tier, requiring a higher copay or coinsurance under Part D.

Catastrophic Coverage

The phase of Medicare Part D drug coverage that begins after you and your plan have spent a certain total amount on covered drugs in a year. In this phase, your copays are significantly reduced. In 2025, out-of-pocket costs are capped at $2,000 annually.

Coverage Gap

A phase in Medicare Part D where you pay a higher share of your drug costs after your total drug spending reaches a certain amount. Sometimes called the "donut hole." In 2025, the coverage gap was effectively eliminated for most beneficiaries due to the Inflation Reduction Act.

Also known as: Donut Hole

Formulary

A list of prescription drugs covered by a Medicare Part D plan or Medicare Advantage plan with drug coverage. Drugs are organized into tiers, with each tier having a different cost. Plans can change their formularies annually.

Also known as: Drug list, Preferred drug list

Generic Drug

A prescription drug that has the same active ingredients, dosage, and effectiveness as a brand-name drug but is sold at a lower price after the brand-name patent expires. Generic drugs are typically in lower Part D tiers with lower copays.

Independent Payment Advisory Board

The point at which your total drug spending under Part D reaches a set threshold, after which you enter the coverage gap phase. This limit applies to the combined spending by you and your plan.

Also known as: ICL

Medicare Part D

Medicare prescription drug coverage. A voluntary program offered through private insurers to help pay for outpatient prescription drugs. Plans vary in which drugs they cover (formulary) and what you pay. You may owe a late enrollment penalty if you don't join when first eligible.

Also known as: Prescription drug coverage

Prescription Drug Plan (PDP)

A stand-alone Medicare Part D plan that provides prescription drug coverage for people enrolled in Original Medicare. PDPs are separate from Medicare Advantage plans that already include drug coverage.

Also known as: PDP, Stand-alone Part D Plan

Standard Benefit Package

The minimum level of coverage that Medicare Part D prescription drug plans must provide. Plans may offer enhanced coverage above this standard, but all must include at least the standard benefit.

Step Therapy

A coverage requirement where you must try a less expensive drug first before your plan will cover a more expensive one. Commonly used in Medicare Advantage and Part D plans to control costs.

Also known as: Fail first policy

Tier

A level in a Part D formulary that determines how much you pay for a drug. Most plans have 4–5 tiers. Generic drugs are typically in lower tiers with lower copays; brand-name and specialty drugs are in higher tiers with higher copays or coinsurance.

Also known as: Drug tier

True Out-of-Pocket (TrOOP)

The amount that counts toward moving you through Medicare Part D phases and into catastrophic coverage. TrOOP includes what you pay out of pocket for covered Part D drugs, plus certain payments made on your behalf.

Also known as: TrOOP