Medicare Part D

Medicare Part D is the prescription drug side of Medicare. It is voluntary, it is delivered entirely through private plans that Medicare regulates and subsidizes, and since 2025 it includes something the medical side of original Medicare still lacks: a hard annual limit on what you can be required to spend. In 2026, once your out-of-pocket costs for covered drugs reach $2,100, you pay nothing more at the pharmacy for the rest of the year ¹.

That cap has changed what Part D is. For its first two decades the program was notorious for the "donut hole," a coverage gap that could leave people paying thousands mid-year. The Inflation Reduction Act of 2022 rebuilt the benefit: the gap is gone, insulin cost sharing is capped at $35 a month, recommended vaccines like shingles are free, and the annual cap arrived at $2,000 in 2025, indexed each year afterward ¹.

About 56 million people have Part D coverage in 2026. A little over half get it bundled into a Medicare Advantage plan; the rest buy a stand-alone drug plan alongside original Medicare ².

Two ways to get drug coverage#

A stand-alone prescription drug plan (PDP) works next to original Medicare, usually paired with a Medigap policy for the medical gaps. A Medicare Advantage plan with drug coverage (an MA-PD) wraps medical and drug benefits into one plan. The drug rules described in this article, including the deductible, the cap, and the penalty, apply either way.

The market has been consolidating. In 2026 there are 360 stand-alone plans nationwide, down from 464 in 2025, and the typical state offers a choice of 8 to 12 PDPs ². The average stand-alone premium is about $36 a month in 2026, down 7 percent from 2025, though individual plans range from zero-premium to more than $100 ². Drug coverage folded into Medicare Advantage plans averages about $8 a month ². Higher-income enrollees pay an extra Part D surcharge on top of any plan premium; the income cliffs behind that surcharge are covered in taxes in retirement.

Sources for this section: [2]

What you pay in 2026#

Under the standard benefit design, costs come in three phases ¹:

Plans are allowed to be more generous than the standard design, and most are in practice: many charge no deductible on generic tiers and use flat copays instead of 25 percent coinsurance. Premiums do not count toward the $2,100 cap, and neither do drugs your plan does not cover, so the cap protects you only within your plan's formulary.

Sources for this section: [1]

Spreading costs across the year with monthly payments#

Reaching $2,100 in January is very different from reaching it in November. The Medicare Prescription Payment Plan, which started in 2025, lets you opt in to having your pharmacy costs billed monthly by your plan instead of paid at the counter ³. Each month's bill is your accumulated balance divided by the months left in the year, so someone who would owe $2,100 at the pharmacy in January can pay roughly $175 a month instead.

The option is free, every Part D and MA-PD plan must offer it, and you can opt in online, by phone, or by mail through your plan ³. It does not lower what you owe by a single dollar; it only changes the timing. It tends to help people who hit high costs early in the year and does little for those with small, steady copays. If you participated last year, plans generally renew you unless you opt out, but the balance must still be paid off by year-end, a point worth checking in your budgeting.

Sources for this section: [3]

Formularies, tiers, and plan rules#

Every plan maintains a formulary, the list of drugs it covers, organized into cost tiers. A typical structure runs from preferred generics on tier 1 (often a few dollars or free) up to specialty drugs on tier 5 or 6, where coinsurance of 25 to 33 percent is common. The same drug can sit on different tiers in different plans, which is the single biggest reason two neighbors with identical prescriptions can face very different annual costs.

Plans also apply utilization management rules:

• Prior authorization: the plan must approve the prescription before it pays.
• Step therapy: you must try a cheaper drug first.
• Quantity limits: the plan caps how much it covers per fill.

If your drug is not on the formulary, or a rule blocks it, you and your prescriber can request a formulary exception, and denials can be appealed through several levels. Pharmacy networks matter too: plans negotiate lower prices at "preferred" pharmacies, and using a non-preferred one can raise your copays even though it is in network.

The late enrollment penalty#

Part D charges a lifelong penalty to people who go without drug coverage for too long and enroll later. You owe it if, after your initial enrollment window around age 65 ends, you go 63 or more consecutive days without Part D or other "creditable" coverage (coverage at least as good as Part D, such as most employer or VA drug benefits) ⁴. The details of the enrollment windows themselves are in Medicare enrollment periods.

The penalty is 1 percent of the national base beneficiary premium, which is $38.99 in 2026, multiplied by the number of full months you were uncovered, rounded to the nearest 10 cents ⁴. It is added to your premium every month for as long as you have Medicare drug coverage, and because it is recalculated against each year's base premium, it can drift upward over time.

A worked example: suppose you went 14 full months without creditable coverage before joining a plan. Your 2026 penalty is 14 percent of $38.99, which is $5.46, rounded to $5.50 a month, about $66 for the year, on top of whatever your plan charges. Someone who waited five years (60 months) would pay 60 percent of $38.99, about $23.40 a month in 2026, for life.

Note: The penalty math makes one thing clear: even if you take no medications at 65, enrolling in the cheapest available plan is often less expensive over a lifetime than paying the penalty later. People who qualify for Extra Help owe no penalty at all ⁴.

Sources for this section: [4]

Extra Help with drug costs#

Extra Help, formally the Low-Income Subsidy, pays most Part D costs for people with limited income and assets. In 2026 it is available with income up to 150 percent of the federal poverty level, roughly $2,015 a month for a single person or $2,725 for a couple, with resources under $16,590 (single) or $33,100 (couple); your home, car, and belongings do not count ⁵.

The program pays the full premium on benchmark plans, wipes out the deductible, and caps 2026 copays at $5.10 for generics and $12.65 for brand-name drugs until you reach the $2,100 threshold, after which drugs are free ⁵. About 13.6 million people, roughly a quarter of Part D enrollees, receive the subsidy in 2026 ². Enrollment is automatic if you have Medicaid, a Medicare Savings Program, or Supplemental Security Income; everyone else applies through Social Security, online or at 1-800-772-1213.

Sources for this section: [2] [5]

Negotiated drug prices arrived in 2026#

For the first time in the program's history, Medicare now negotiates prices directly with manufacturers. Negotiated prices for the first ten drugs took effect on January 1, 2026, covering widely used medications including Eliquis, Xarelto, Jardiance, Januvia, Farxiga, Entresto, Enbrel, Stelara, Imbruvica, and the NovoLog insulins ⁶. The negotiated prices run 38 to 79 percent below the drugs' 2023 list prices, and CMS estimates enrollees who take them will save about $1.5 billion in out-of-pocket costs in 2026 ⁶.

The program expands on a set schedule: 15 more drugs were selected for prices taking effect in 2027, another 15 follow in 2028, and up to 20 drugs are added each year after that ⁷. Because the $2,100 cap already limits what any one person pays, the negotiation program's savings show up partly in your coinsurance before the cap and partly in slower premium growth for everyone.

Sources for this section: [6] [7]

Why plans deserve a fresh look every fall#

Part D plans are one-year contracts. Every January, plans can change their premiums, deductibles, formularies, tiers, pharmacy networks, and rules, and they describe those changes in the Annual Notice of Change that arrives each September. A plan that fit perfectly this year can be a poor fit next year even if your prescriptions never change.

Most people never look. KFF found that nearly 7 in 10 Medicare beneficiaries did not compare plans during a recent open enrollment period ⁸. The comparison is worth an hour: enter your drug list and preferred pharmacy into the Medicare Plan Finder at medicare.gov during open enrollment, October 15 to December 7, and it ranks plans by your estimated total annual cost, premiums plus copays, rather than premium alone. Free one-on-one help is available from your State Health Insurance Assistance Program (SHIP) at 877-839-2675. Switching takes effect January 1 with no penalty and no medical questions.

Sources for this section: [8]

RetiredWiki. (2026, July 6). Medicare Part D. https://retiredwiki.com/article/medicare-part-d