Medicare Part D is prescription drug coverage that helps pay for medications. In 2026, the most important change is the new $2,100 annual out-of-pocket cap, once you spend $2,100 on covered drugs, you pay $0 for the rest of the year. This replaces the old "donut hole" structure where beneficiaries with high drug costs could face thousands in annual spending. According to CMS, this cap will save the average beneficiary with high drug costs over $1,500 per year.
If you're on Original Medicare with a Medicare Supplement plan, you need a standalone Part D plan. If you're on Medicare Advantage, drug coverage is usually built in. Either way, understanding how Part D works can save you hundreds to thousands of dollars annually.
How Does Medicare Part D Work in 2026?
Every Part D plan has a formulary, a list of covered drugs organized into cost tiers. Lower tiers cost less; higher tiers cost more. Plans negotiate prices with pharmaceutical manufacturers, which is why the same drug can have very different costs on different plans.
Part D coverage has distinct stages that determine what you pay at each point during the year:
What Are the Part D Coverage Stages?
- Deductible phase: You pay 100% of drug costs until you reach the plan's deductible (up to $590 in 2026). Many plans have $0 deductibles for Tier 1 and Tier 2 drugs.
- Initial coverage phase: You pay copays or coinsurance based on your drug's tier. The plan pays the remainder. This continues until your total drug costs (what you and the plan pay combined) reach $5,030.
- Coverage gap phase: Previously the dreaded "donut hole," this phase now operates the same as initial coverage. You continue paying your copays/coinsurance while the plan and drug manufacturers share costs.
- Catastrophic coverage phase: Once your out-of-pocket spending reaches $2,100, you pay $0 for all covered drugs for the rest of the year. This is the new cap introduced by the Inflation Reduction Act.
What Are the Part D Formulary Tiers and How Much Do They Cost?
Most Part D plans organize drugs into 5 or 6 tiers:
| Tier | Drug Type | Typical Cost | Examples |
|---|---|---|---|
| Tier 1 | Preferred generics | $0 to $10 copay | Metformin, lisinopril, omeprazole |
| Tier 2 | Non-preferred generics | $10 to $25 copay | Less common generics |
| Tier 3 | Preferred brands | $30 to $50 copay | Eliquis, Jardiance |
| Tier 4 | Non-preferred brands | $80 to $150 copay | Brand drugs with generic alternatives |
| Tier 5 | Specialty drugs | 25 to 33% coinsurance | Biologics, cancer drugs, injectables |
According to the Kaiser Family Foundation, about 90% of Part D prescriptions filled are generic drugs (Tiers 1 to 2), and most beneficiaries' annual drug costs are well below the catastrophic threshold. However, beneficiaries taking even one specialty drug can reach the $2,100 cap quickly.
How Much Does Medicare Part D Cost in 2026?
- Monthly premiums: $0 to $100+ per month depending on the plan. The national average base beneficiary premium is $36.78 in 2026. Plans with $0 deductibles or richer formularies tend to have higher premiums.
- Annual deductible: Up to $590 (many plans charge less or $0 for generics)
- Out-of-pocket maximum: $2,100 per year, the new hard cap. After reaching this amount, you pay nothing for covered drugs the rest of the year.
- IRMAA surcharge: Higher-income beneficiaries (individuals earning over $106,000 or couples over $212,000) pay an additional premium surcharge. Read our complete IRMAA guide for bracket details.
How Do You Choose the Right Part D Plan?
Choosing based on premium alone is one of the most common Medicare mistakes. A plan with a $12/month premium might cost you more overall than a $35/month plan if your specific medications are on higher tiers. Here's the right approach:
- Make a complete medication list. Include drug name, dosage, frequency, and quantity. Include over-the-counter medications that require a prescription version.
- Use the Medicare Plan Finder. Enter your drugs at Medicare.gov/plan-compare to see which plans cover your medications and at what cost.
- Check your pharmacy. Every Part D plan has a pharmacy network. Preferred pharmacies (often mail-order or specific chains) offer lower copays. Using a non-preferred pharmacy can double your cost.
- Compare total annual cost. Calculate: (monthly premium × 12) + deductible + estimated copays for all your medications. This total, not the premium, is what matters.
- Check for restrictions. Look for prior authorization requirements, step therapy (trying a cheaper drug first), and quantity limits on your medications.
What Changed About Part D with the Inflation Reduction Act?
The Inflation Reduction Act of 2022 made several historic changes to Part D, phasing in over 2023 to 2026:
- $35 insulin cap (effective 2023): All Part D plans must cap insulin copays at $35/month per prescription
- Free vaccines (effective 2023): All Part D-covered vaccines are now $0 cost-sharing
- $2,000 out-of-pocket cap (effective 2025, adjusted to $2,100 for 2026): Hard annual cap eliminates catastrophic-phase cost-sharing
- Medicare drug price negotiation: CMS now negotiates prices directly for certain high-cost drugs, with first negotiated prices taking effect in 2026
The KFF estimates that the $2,100 cap will save approximately 1.5 million Medicare beneficiaries an average of $1,500 per year, particularly those taking specialty medications for cancer, autoimmune diseases, and chronic conditions.
Should You Review Your Part D Plan Every Year?
Yes, and this isn't optional advice. Part D formularies, tier placements, pharmacy networks, and premiums change every plan year. According to CMS, approximately 70% of Part D enrollees could save money by switching plans during the Annual Enrollment Period (October 15, December 7).
Common year-over-year changes that affect your costs:
- Your medication moved from Tier 2 to Tier 3 (doubling your copay)
- Your preferred pharmacy was dropped from the network
- A new plan entered your area with better coverage for your drugs
- Your plan's deductible changed from $0 to $590
- A generic version of your brand drug became available (lowering your cost on a different plan)
Frequently Asked Questions About Medicare Part D
Do I need Part D if I don't take any medications?
You should still enroll in a low-cost Part D plan. If you delay enrollment and don't have creditable drug coverage, you'll face a permanent late enrollment penalty, 1% of the national base premium per month of delay, added to your premium for life.
What is "creditable" drug coverage?
Creditable coverage is drug coverage that is at least as good as standard Part D coverage. Employer plans, VA benefits, and TRICARE typically qualify. Your plan administrator must send you a notice each year confirming creditable status. Keep these notices, they're your proof if you need to enroll in Part D later.
Can I change my Part D plan mid-year?
Generally, no. Changes are limited to AEP (October 15, December 7) unless you qualify for a Special Enrollment Period due to moving, losing other coverage, or qualifying for Extra Help/Medicaid.
What is the Part D "donut hole", does it still exist?
The donut hole as a coverage gap no longer exists. Since 2020, beneficiaries have paid no more than 25% of drug costs in the gap phase. And starting in 2025 (with the 2026 adjustment to $2,100), the out-of-pocket cap eliminates any remaining gap concern, once you hit $2,100, drugs are free for the rest of the year.