Medicare Part D is the prescription drug coverage piece of Medicare — sold by private insurers under federal rules. If you’re on Original Medicare, you need to add a standalone Part D plan to cover your medications. If you’re on Medicare Advantage, drug coverage is usually built in. Either way, picking the wrong plan can easily cost you thousands of dollars a year you don’t need to spend. Here’s how Part D works in 2026, including the major changes from the Inflation Reduction Act, and how to choose the right plan for your medications.
How Part D works
Part D is offered through private plans approved by Medicare. You pay a monthly premium to the private insurer, plus copays or coinsurance when you fill prescriptions. Each plan has its own:
- Formulary — the list of drugs the plan covers, organized into pricing tiers
- Pharmacy network — preferred pharmacies offer lower copays than non-preferred ones
- Premium — what you pay each month for the coverage itself
- Deductible — the amount you pay before the plan starts paying (up to $590 in 2026; some plans waive it)
- Cost-sharing tiers — copay or coinsurance amounts for each tier of drugs
Premiums in 2026 range from about $0 (for low-income subsidy recipients) to $80/month or more for richer plans. Most enrollees pay $20–$50 monthly.
The 2026 changes that matter
The Inflation Reduction Act of 2022 made the biggest changes to Part D since the program started in 2006. Most of those changes are now fully in effect:
$2,000 annual out-of-pocket cap (in effect 2025 onward)
Once you’ve spent $2,000 out-of-pocket on covered drugs in a calendar year, you pay $0 for any further covered prescriptions for the rest of the year. This replaced the old “catastrophic coverage” phase that still required 5% coinsurance — which could cost thousands for people on expensive drugs. The new cap protects beneficiaries on cancer drugs, immunosuppressants, and other high-cost medications.
The ‘donut hole’ is gone
The old four-phase Part D structure (deductible → initial coverage → donut hole → catastrophic) has been simplified. There are now three phases: deductible, initial coverage, and the $2,000 cap. The infamous donut hole (where seniors paid more after their drug spending hit a threshold) no longer exists.
Medicare Prescription Payment Plan
Starting in 2025, you can opt to spread your annual drug costs across the year in monthly payments instead of paying large amounts when filling expensive prescriptions. Useful if you have a high-cost drug early in the year and want to smooth the cash-flow impact.
Insulin and vaccines
All covered insulins are capped at $35/month. ACIP-recommended adult vaccines (shingles, RSV, Tdap, etc.) are free under Part D — no copay, no deductible.
Drug price negotiation
Medicare can now negotiate prices on a small set of high-cost drugs. The first negotiated prices took effect in 2026. Over time this list will grow, lowering prices on more drugs.
Plan formularies and tiers
Every Part D plan has a formulary — the list of drugs it covers. Drugs not on the formulary aren’t covered at all (with rare exception requests). Drugs that are on the formulary fall into tiers, typically:
- Tier 1: Preferred generics — lowest copay, often $0–$5
- Tier 2: Generic — low copay, $5–$15
- Tier 3: Preferred brand — moderate copay, $30–$50
- Tier 4: Non-preferred drug — higher copay or coinsurance, often 30%–50%
- Tier 5: Specialty — high coinsurance (25%–33%) for very expensive drugs
The same drug can be on tier 2 in one plan and tier 4 in another — making the same medication far more or less expensive depending on which plan you pick.
Coverage rules to watch for
Even when a drug is on the formulary, plans can use cost-management tools that may affect access:
- Prior authorization — you (or your doctor) must get the plan’s approval before the drug will be covered
- Step therapy — you must try cheaper alternatives first before the plan will cover the more expensive drug
- Quantity limits — the plan limits how much you can fill in a given period
These don’t mean the drug isn’t covered, but they add friction. Always check the plan’s notes on each of your prescriptions before enrolling.
Pharmacy networks
Part D plans organize pharmacies into preferred and standard networks. At preferred pharmacies your copays are lower; at standard pharmacies they may be modestly higher; at non-network pharmacies your prescriptions may not be covered at all (except in emergencies).
Preferred pharmacies vary widely by plan — one plan’s preferred network might be CVS, while another’s might be Walgreens or a regional chain. Mail-order is usually preferred and offers a 90-day supply for less than three 30-day fills.
Confirm your pharmacy is in the plan’s preferred network before enrolling. If you have multiple regular fills, the difference between preferred and standard copays can add up to several hundred dollars a year.
🆓 Comparing Part D plans? Get free expert help.
The right Part D plan depends on your specific medications — and the lowest-premium plan is rarely the cheapest overall. Our partner Chapter Medicare offers free, unbiased guidance from licensed advisors who can compare plans based on your prescription list.
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Why the cheapest premium is rarely the cheapest plan
Plan A might have a $15 monthly premium but charge $30 for one of your prescriptions. Plan B has a $40 premium but charges $5 for that same prescription. If you fill 12 times a year:
- Plan A: $180 premiums + $360 copays = $540
- Plan B: $480 premiums + $60 copays = $540
Same total cost. Now imagine you have 4 prescriptions:
- Plan A could cost $180 + ($30 × 4 × 12) = $1,620
- Plan B could cost $480 + ($5 × 4 × 12) = $720
Plan B saves $900 a year despite the higher premium. The right Part D plan is the one with the lowest total annual cost for your specific medications — not the lowest premium.
Use medicare.gov’s plan finder. Enter your prescriptions and dosages. The tool calculates expected total annual cost (premium + deductible + copays) under every plan in your area. The differences are often dramatic.
The late enrollment penalty
If you don’t enroll in Part D when first eligible and don’t have other “creditable” drug coverage, you’ll face a permanent late enrollment penalty when you finally do enroll.
The penalty is 1% of the national base beneficiary premium per month you went uncovered. For 2026, the base is about $36/month. Going 24 months without coverage adds 24% to your monthly Part D premium — permanently. That penalty stays with you for as long as you have Part D coverage.
Creditable coverage that avoids the penalty includes:
- Most employer or union retiree drug plans
- VA prescription benefits
- TRICARE
- Active employer coverage that includes drugs
Always keep the annual creditable coverage notices your plan or employer sends — they’re proof you weren’t uncovered. If you lose creditable coverage, you have 63 days to enroll in a Medicare Part D plan to avoid the penalty.
When to enroll
Three key windows:
Initial Enrollment Period (around age 65)
The 7-month window starting 3 months before your 65th birthday month. Enrolling during this window avoids the late enrollment penalty.
Annual Open Enrollment (October 15 to December 7)
Each year you can switch Part D plans, change Medicare Advantage plans, or move between Original Medicare and Medicare Advantage. Changes take effect January 1. This is when most people should re-evaluate their plan — formularies and prices change every year.
Special Enrollment Periods
Triggered by qualifying life events — moving out of your plan’s service area, losing creditable employer drug coverage, qualifying for Extra Help, etc.
Extra Help (Low-Income Subsidy)
If you have limited income and resources, you may qualify for Extra Help — the federal subsidy that pays most or all of your Part D premiums, deductibles, and copays.
As of 2026, single people earning less than about $23,500 and couples under about $31,800 (with limited resources) typically qualify for full Extra Help. Apply at ssa.gov — the application is straightforward and the savings can be over $5,000 a year for someone on multiple medications.
Even if you didn’t qualify in past years, recent Inflation Reduction Act changes expanded eligibility. It’s worth applying or reapplying.
Common mistakes
- Picking the lowest premium without checking drug coverage. The cheapest premium plan often has the highest copays or doesn’t cover one of your medications.
- Not reviewing your plan every year. Formularies, premiums, and tier placements change every year. The best plan in 2025 may not be best in 2026.
- Skipping enrollment because you don’t take many medications. The late enrollment penalty is permanent — even one or two cheap drugs are usually worth a $20/month plan.
- Not asking about generic alternatives. A brand-name drug on tier 4 might have a tier-1 generic that costs a fraction.
- Filling at non-preferred pharmacies. Switching to a preferred pharmacy or mail order is often the easiest way to lower drug costs.
- Not applying for Extra Help. Many people who would qualify don’t apply because they assume they make too much.
How to choose your plan
- List every prescription you take — name, dosage, frequency
- Note your preferred pharmacy
- Go to medicare.gov/plan-compare and enter your zip code, drugs, and pharmacy
- Compare expected annual total cost (premium + deductible + copays) across plans — not just premiums
- Verify each of your drugs is on the plan’s formulary, not subject to prior authorization or step therapy you can’t meet
- Confirm your pharmacy is preferred, not just standard or out-of-network
- Check the plan’s star rating — 4 or 5 stars is good; below 3 stars is a red flag
- Re-do this comparison every fall during Open Enrollment, even if you’re happy — plans change
The bottom line
Part D is private insurance for prescription drugs operating under federal rules. Plans differ enormously in which drugs they cover and at what cost — the right plan for your neighbor may be wrong for you. The 2025 reforms capped annual out-of-pocket costs at $2,000, eliminated the donut hole, and expanded subsidies for lower-income enrollees, making the program much more protective than it used to be.
Pick your plan based on your specific medications, not on premium alone. Re-evaluate every fall. Apply for Extra Help if your income is modest. Don’t skip enrollment unless you have other creditable coverage — the penalty is permanent.
🆓 Need help finding the right drug plan?
Comparing Part D plans means matching your specific prescriptions to each plan’s formulary, copays, and pharmacy network. Our partner Chapter Medicare offers free one-on-one help from licensed advisors who can do that comparison for you.
📞 Call 615-639-1937 | 🔗 askchapter.org/money
ALWAYS FREE. No obligation.
Disclosure: We may receive a referral from Chapter if you choose to use their service. Chapter is a licensed health insurance agency and is not affiliated with or endorsed by Medicare or any government agency.
Further Reading
- Medicare Parts A, B, C, and D Explained
- Medicare Advantage vs. Original Medicare
- Medigap (Medicare Supplement) Explained
- Medicare Costs and Premiums
- Medicare Enrollment
- Medicare Extra Help
This article is for general educational purposes only and does not constitute insurance or financial advice. Visit medicare.gov or consult a licensed advisor for guidance specific to your situation.