How Part D plans and drug lists work
Part D isn’t run by the government directly. Insurers offer plans that follow Medicare’s rules, and each plan sets its own premium, pharmacy network and cost sharing within federal limits. To join a drug plan you need Part A or Part B and must live in the plan’s service area. Part B covers only a narrow set of drugs, usually ones you wouldn’t give yourself, such as those given in a doctor’s office, so the pills and pens you pick up at a pharmacy need Part D.
Each plan’s list of covered drugs is its formulary. It must include at least two drugs in the most commonly prescribed categories and most drugs in protected classes such as cancer, HIV and antidepressant drugs, but plans choose which drugs to list. Many sort drugs into tiers, with generics cheapest and specialty drugs costliest, and some drugs need prior authorization, step therapy (trying a cheaper drug first) or quantity limits. Your prescriber can ask the plan for an exception. Plans must also cover commercially available vaccines, such as shingles and RSV shots, and recommended adult vaccines cost you nothing.
You can get Part D in two ways:
- A standalone prescription drug plan, paired with Original Medicare and often a Medigap policy.
- A Medicare Advantage plan that includes drug coverage, so one private plan handles both medical and drug benefits.
The 2026 benefit: deductible, 25% and the $2,100 cap
The Inflation Reduction Act redesigned Part D in 2025, ending the coverage gap and adding a yearly out-of-pocket cap: $2,000 in 2025 and $2,100 in 2026.
In the deductible stage you pay the full cost of covered drugs until you meet your plan’s deductible, which can’t exceed $615 in 2026; some plans have none. In the initial coverage stage the standard design charges 25% coinsurance, though your plan may charge a flat copay for some drugs instead. Once your out-of-pocket spending on covered drugs reaches $2,100, catastrophic coverage begins and you pay nothing for covered drugs for the rest of the calendar year. Payments made on your behalf, such as through Extra Help, count toward the cap.
Insulin has its own limit: no more than $35 for a month’s supply of each covered insulin product, with no deductible, even for people who get Extra Help. Negotiated Medicare prices for the first 10 Part D drugs became available on January 1, 2026, and 15 more follow on January 1, 2027.
For 2027, the maximum deductible rises to $700 and the cap to $2,400. Every plan also offers the Medicare Prescription Payment Plan, which spreads your out-of-pocket costs into monthly bills from the plan instead of charging them at the pharmacy. It smooths cash flow but doesn’t lower what you owe.
The late enrollment penalty and creditable coverage
Part D is optional, but skipping it has a price. If you go 63 or more days in a row without Part D or other creditable drug coverage after your Initial Enrollment Period ends, a penalty is added to your premium when you join. It generally lasts as long as you have Medicare drug coverage, even if you switch plans, and your new plan tells you whether you owe it.
Creditable coverage is drug coverage expected to pay, on average, at least as much as Medicare’s standard benefit. Coverage from a current or former employer or union, TRICARE, the Indian Health Service or the VA can qualify, and your plan must tell you each year whether yours does. Keep those notices, because a new drug plan may ask you to prove it. Discount cards, free samples and drug discount websites are not coverage.
The penalty is 1% of the national base beneficiary premium for each full month you went without coverage, and it moves with that premium every year: $38.99 in 2026 and an announced $41.33 for 2027. The page on Medicare enrollment periods shows when you can join without one.
Choosing a plan and common mistakes
The cheapest premium is rarely the cheapest plan. Compare the total yearly cost of the drugs you actually take, adding the premium, the deductible and each drug’s cost sharing at the pharmacies you use. Medicare’s plan comparison tool at Medicare.gov estimates that total when you enter your prescriptions. Repeat the check every fall, because plans can change premiums and covered drugs each year, and Open Enrollment from October 15 to December 7 is the main time to switch, with changes taking effect January 1.
- Skipping Part D because you take no drugs now, then owing a penalty that lasts as long as you have Part D when you join later.
- Assuming retiree or employer drug coverage is creditable without checking the annual notice.
- Forgetting the two-year IRMAA look-back when planning a large Roth conversion or sale.
Illustrative numbers
One $1,000-a-month drug through the 2026 Part D stages
- national base beneficiary premium
- $38.99 a month in 2026; $41.33 announced for 2027
- uncovered months
- full months after your Initial Enrollment Period without Part D or creditable drug coverage, once a gap reaches 63 days
The penalty is rounded to the nearest 10 cents: 14 uncovered months in 2026 is 14% × $38.99 = $5.46, charged as $5.50 a month.
Plan’s cost for the drug each month$1,000
January: $615 deductible plus 25% of the remaining $385$711.25
February–June: 25% × $1,000 each month$1,250.00
July: the amount that reaches the cap$138.75
August–December$0
Total paid for the year$2,100.00
Without the cap, the same 25% design would cost $3,461.25 for the year ($615 plus 25% of $11,385). With it, this enrollee is done paying in July. The Medicare Prescription Payment Plan could turn the January bill of $711.25 into smaller monthly payments without changing the $2,100 total.
At a glance
The 2026 Part D benefit stages
| Stage | What you pay | When it ends |
|---|---|---|
| Deductible | Full cost of covered drugs up to your plan’s deductible (maximum $615) | When the deductible is met; some plans have none |
| Initial coverage | 25% coinsurance under the standard design, or plan copays | When your out-of-pocket costs reach $2,100 |
| Catastrophic coverage | $0 for covered drugs | December 31 |
| Insulin, any stage | Up to $35 for a month’s supply of each covered insulin, no deductible | Applies all year |
Put it in your plan
Part D in MoneyWhatIf
MoneyWhatIf doesn’t price a specific drug plan. From the plan year each person turns 65, its Medicare estimate adds the $38.99 Part D national base beneficiary premium beside Part B as a transparent placeholder, and a monthly supplemental amount you enter per person is added on top, the place for a Medigap or Medicare Advantage premium. Part D IRMAA follows household MAGI from two years earlier. Out-of-pocket drug costs, the $2,100 cap, Extra Help and late penalties aren’t modeled, so put expected pharmacy spending in a healthcare spending card.
Common questions
Part D FAQs
Is Medicare Part D mandatory?
No, Part D is voluntary. But if you go without it, or without other creditable drug coverage, for 63 days or more in a row after your Initial Enrollment Period, you’ll owe a late enrollment penalty for as long as you have Part D once you join. That is why Medicare suggests that people who take few drugs consider a low-premium plan. People with Extra Help don’t owe the penalty.
Is there still a Medicare Part D donut hole?
No. The coverage gap, known as the donut hole, ended in 2025 under the Inflation Reduction Act redesign. Plans now have three stages: a deductible of up to $615 in 2026, initial coverage at 25% coinsurance under the standard design, and catastrophic coverage, where you pay nothing more for covered drugs once your out-of-pocket costs reach $2,100. Premiums and IRMAA don’t count toward that cap.
Can I have Part D and employer drug coverage at the same time?
Sometimes, but ask first. If your employer or union coverage is creditable, you can delay Part D without a penalty and join within two full months after the month that coverage ends. Enrolling in a Medicare drug plan while you keep employer coverage can change it, and you, your spouse or dependents could lose the employer health coverage entirely. Talk to the benefits administrator before you enroll.
When can I switch Part D plans?
Mainly during Open Enrollment, October 15 to December 7, with the new plan starting January 1. Medicare Advantage members also get one switch between January 1 and March 31. Special Enrollment Periods allow changes after events such as moving out of your plan’s area or losing other coverage, and once a year you can move to a plan rated five stars if one serves your area.