What Is Medicare Part D? Prescription Drug Coverage Explained

Medicare Part D is prescription drug coverage. It helps pay for the medications your doctor prescribes, from everyday maintenance drugs to specialty treatments. Part D is offered through private insurance companies approved by Medicare, and it is available to everyone who has Medicare Part A or Part B.

Part D is one of the four parts of Medicare. While Part A covers hospital care and Part B covers doctor visits and outpatient services, Part D focuses exclusively on outpatient prescription drugs. This guide explains how Part D works, who is eligible, what it costs, how to compare plans, and how to enroll.

How Medicare Part D Works

Medicare Part D is not provided directly by the federal government. Instead, you get drug coverage from a private insurance company that contracts with Medicare. These companies must follow rules set by the Centers for Medicare and Medicaid Services, but each plan has its own list of covered drugs, pharmacy network, and pricing structure.

You choose a plan based on the medications you take, the pharmacies you prefer, and the monthly premium you are willing to pay. Each year, plans can change their formularies, costs, and pharmacy networks, so it is important to review your plan during the Annual Enrollment Period.

Standalone PDP vs. MA-PD

There are two ways to get Medicare Part D coverage. The first is a standalone Prescription Drug Plan, often called a PDP. You add a PDP to Original Medicare or to a Medigap policy. The second is a Medicare Advantage Prescription Drug plan, known as an MA-PD. This type of plan bundles your hospital, medical, and drug coverage into a single plan.

If you have Original Medicare and want drug coverage, you must join a standalone PDP. If you have Medicare Advantage, your plan may already include drug coverage. You generally cannot enroll in both a standalone PDP and an MA-PD at the same time. Understanding which path you are on determines how you shop for and manage your drug benefits.

Who Is Eligible for Part D?

Anyone enrolled in Medicare Part A or Part B is eligible for Part D. This includes people age 65 and older as well as younger individuals who qualify for Medicare due to disability or end-stage renal disease. You must live in the service area of the plan you choose.

Enrollment in Part D is voluntary. However, if you delay enrollment and do not have creditable drug coverage from another source, such as an employer plan or the Department of Veterans Affairs, you will face a late enrollment penalty. Creditable coverage means the other plan provides benefits at least as good as a standard Part D plan.

Understanding the Drug Formulary

Every Part D plan has a formulary, which is the list of prescription drugs the plan covers. Formularies are organized into tiers, and each tier has a different cost-sharing amount. Plans must cover at least two drugs in each therapeutic category and class, and they must include all or substantially all drugs in six protected classes: cancer, HIV/AIDS, seizure disorders, depression, psychosis, and organ transplant rejection.

Most formularies use a tier structure similar to the following.

• Tier 1 -- Preferred generics: These are the lowest-cost generic drugs. You pay a small copay, often between $0 and $15.
• Tier 2 -- Generics: Non-preferred generics that cost slightly more than Tier 1 drugs.
• Tier 3 -- Preferred brand-name drugs: Brand-name medications the plan has negotiated a lower price for. Copays are moderate.
• Tier 4 -- Non-preferred brand-name drugs: Higher-cost brand-name drugs. You typically pay coinsurance instead of a flat copay.
• Tier 5 -- Specialty drugs: The most expensive medications, often used for complex conditions like cancer or rheumatoid arthritis. These drugs may require prior authorization or step therapy.

Not all plans use exactly five tiers. Some use three or four. Always check the formulary for your specific Part D plan before filling a prescription to understand your costs. Plans can also impose restrictions like prior authorization, quantity limits, and step therapy on certain drugs.

Part D Coverage Phases in 2026

Part D uses a phased benefit structure. The amount you pay for prescriptions changes as your total drug spending increases throughout the year. In 2026, the standard Part D benefit has four distinct phases.

Phase 1: Annual Deductible

The standard Part D deductible for 2026 is $590. You pay the full cost of your drugs until you have spent this amount. Some plans offer a lower deductible or no deductible at all, especially for drugs on lower tiers. Plans are not allowed to charge a deductible higher than the standard amount.

Phase 2: Initial Coverage

After you meet the deductible, you enter the initial coverage phase. During this phase, you pay a copay or coinsurance for each prescription, and your plan pays the rest. The amount you pay depends on which formulary tier your drug falls on. This phase continues until your total drug costs, meaning what you and your plan have paid combined, reach a set threshold.

Phase 3: Coverage Gap (The Donut Hole)

The coverage gap, commonly called the donut hole, is the phase where you historically paid a larger share of your drug costs. Thanks to the Inflation Reduction Act, this phase has been significantly restructured. Drug manufacturers now pay a larger discount during the gap, and the new $2,000 annual out-of-pocket cap means most beneficiaries will never feel the full impact of this phase.

Phase 4: Catastrophic Coverage

Once your true out-of-pocket spending reaches $2,000, you enter the catastrophic coverage phase. Beginning in 2025, the Inflation Reduction Act eliminated all cost-sharing in the catastrophic phase. This means you pay $0 for covered drugs for the rest of the year once you reach the cap. This is one of the most significant changes to Part D since its creation in 2006.

How Much Does Part D Cost?

Monthly Premium

Each Part D plan sets its own monthly premium. Premiums vary widely depending on the plan's formulary, pharmacy network, and geographic region. Some Medicare Advantage plans include Part D at no additional premium beyond the Part B premium. You should compare multiple plans to find one that balances a manageable premium with affordable copays for the drugs you take.

If your modified adjusted gross income is above a certain threshold, you will pay an Income-Related Monthly Adjustment Amount, known as IRMAA, on top of your plan premium. In 2026, the IRMAA surcharge applies to individuals with income above $106,000 and married couples filing jointly with income above $212,000. The surcharge ranges from about $13 to $81 per month depending on your income bracket.

Deductible and Cost-Sharing

The standard annual deductible for 2026 is $590, though many plans waive or reduce the deductible for generic or preferred drugs. After meeting the deductible, you pay a copay or coinsurance for each prescription. The amount depends on the drug's formulary tier. Generic drugs on lower tiers may cost as little as $0 to $15 per fill, while specialty drugs on the highest tier may require 25 to 33 percent coinsurance.

The $2,000 Annual Out-of-Pocket Cap

The most important cost protection in Part D is the $2,000 annual out-of-pocket cap. Once your true out-of-pocket spending on covered drugs reaches this amount, you owe nothing more for prescriptions for the rest of the calendar year. Only the amounts you pay out of pocket count toward the cap. Payments from your plan, drug manufacturers, and other third parties do not count.

Medicare also offers the Medicare Prescription Payment Plan, which lets you spread your out-of-pocket drug costs into predictable monthly installments rather than paying large amounts at the pharmacy counter. You can opt into this payment plan through your Part D plan at any time during the year.

How to Compare Part D Plans

Choosing the right Part D plan requires more than just looking at the monthly premium. A plan with a low premium may have higher copays for the drugs you take, which could cost you more overall. Follow these steps to compare plans effectively.

• List your current medications. Include the drug name, dosage, and how often you fill each prescription.
• Use the Medicare Plan Finder. Enter your drugs and preferred pharmacy at Medicare.gov/plan-compare. The tool estimates your total annual cost for each available plan.
• Check the formulary. Make sure every drug you take is on the plan's formulary and note which tier each one falls on.
• Verify your pharmacy. Confirm that your preferred pharmacy is in the plan's network. Using an in-network pharmacy saves money. Many plans also offer lower costs for mail-order pharmacies.
• Compare total annual cost. Add the yearly premium, deductible, and estimated copays together. The plan with the lowest total cost for your drugs is usually the best choice, not necessarily the one with the lowest premium.
• Look at plan restrictions. Check for prior authorization requirements, step therapy rules, and quantity limits on your medications.

You should compare plans every year during the Annual Enrollment Period. Formularies, premiums, and pharmacy networks change annually, and the plan that was cheapest last year may not be the best deal this year.

Part D Enrollment Periods

Initial Enrollment Period

Your Initial Enrollment Period for Part D is the same seven-month window as the rest of Medicare. It starts three months before the month you turn 65, includes your birthday month, and ends three months after. If you qualify for Medicare due to disability, your Initial Enrollment Period begins three months before your 25th month of receiving Social Security disability benefits.

This is the most important enrollment window. If you do not sign up for Part D during this period and do not have other creditable coverage, you will pay a late enrollment penalty when you eventually enroll.

Annual Enrollment Period

The Annual Enrollment Period runs from October 15 to December 7 each year. During this time, you can join a Part D plan for the first time, switch from one Part D plan to another, or drop Part D coverage entirely. Changes made during this period take effect on January 1 of the following year.

Special Enrollment Periods

You may qualify for a Special Enrollment Period if you experience certain life events. These include losing creditable drug coverage from an employer, moving to a new area, qualifying for Extra Help, or leaving a Medicare Advantage plan. A Special Enrollment Period gives you time to enroll in or change your Part D plan outside the standard enrollment windows.

The Part D Late Enrollment Penalty

If you go 63 or more consecutive days without Part D or other creditable drug coverage after your Initial Enrollment Period ends, you will owe a late enrollment penalty when you eventually sign up. The penalty is calculated by multiplying one percent of the national base beneficiary premium by the number of full months you went without creditable coverage.

For example, if you went without creditable coverage for 24 months and the base premium is $36.78, your penalty would be approximately $8.83 per month (24 times one percent of $36.78). This penalty is added to your monthly Part D premium and you pay it for as long as you have Part D coverage. The penalty never goes away, which is why it is critical to enroll on time or maintain creditable coverage.

Extra Help: The Low Income Subsidy

Medicare Extra Help, also known as the Low Income Subsidy, is a federal program that helps people with limited income and resources pay for Part D costs. If you qualify, Extra Help can pay part or all of your Part D premium, deductible, and prescription copayments.

To qualify for Extra Help, your annual income must be below 150 percent of the federal poverty level and your countable resources must be within program limits. Resources include savings, investments, and real estate other than your primary home. You can apply online through the Social Security Administration at ssa.gov, by calling Social Security, or by visiting your local Social Security office.

If you qualify for full Extra Help, you will pay no premium, no deductible, and only a small copayment for each prescription. Partial Extra Help reduces but does not eliminate your costs. People who receive Medicaid, Supplemental Security Income, or help from a state Medicare Savings Program are often automatically enrolled in Extra Help.

What Part D Does Not Cover

Part D covers outpatient prescription drugs, but there are important exclusions. The following are generally not covered by Part D.

• Drugs administered in a hospital or doctor's office (these are covered under Part A or Part B)
• Over-the-counter medications
• Drugs for weight loss or cosmetic purposes
• Drugs not approved by the FDA
• Vitamins and supplements, unless medically necessary

Note that some Medicare Advantage plans voluntarily cover additional items beyond the standard Part D benefit, such as certain over-the-counter health products. Check your plan's evidence of coverage for the full list of what is included.

How the Inflation Reduction Act Changed Part D

The Inflation Reduction Act of 2022 made sweeping changes to Medicare Part D that are now fully in effect. These reforms represent the most significant improvements to the Part D benefit since the program launched in 2006. Here is a summary of the key changes affecting beneficiaries in 2026.

• $2,000 annual out-of-pocket cap. Once you spend $2,000 out of pocket on covered drugs, you pay nothing for the rest of the year.
• Medicare Prescription Payment Plan. You can spread your out-of-pocket drug costs into predictable monthly payments.
• $35 insulin cap. Insulin costs are capped at $35 per month for a 30-day supply for all Part D enrollees.
• Free recommended vaccines. All Part D covered vaccines recommended by the Advisory Committee on Immunization Practices are now free with no copay.
• Drug price negotiation. Medicare can now negotiate prices for select high-cost drugs directly with manufacturers. The first negotiated prices took effect in 2026, with additional drugs added in future years.

These changes collectively provide much stronger financial protection for Medicare beneficiaries, especially those who take expensive medications.

Tips for Getting the Most From Part D

Part D can save you thousands of dollars on prescriptions each year, but only if you choose the right plan and use it wisely. Keep these strategies in mind.

• Ask your doctor about generics. Generic drugs on lower formulary tiers cost significantly less than brand-name alternatives.
• Use preferred pharmacies. Many plans offer lower copays at preferred pharmacies within their network.
• Consider mail-order pharmacy. Filling a 90-day supply through mail order can reduce your per-dose cost and save trips to the pharmacy.
• Review your plan every year. Plans change their formularies, costs, and pharmacy networks annually. What worked last year may not be the best option this year.
• Apply for Extra Help. If your income and resources are limited, you may qualify for significant financial assistance with Part D costs.
• Opt into the Prescription Payment Plan. If you have high-cost drugs early in the year, spreading payments monthly can ease the financial burden.

Key Takeaways

Medicare Part D provides outpatient prescription drug coverage through private plans approved by Medicare. You can get Part D through a standalone Prescription Drug Plan if you have Original Medicare, or through a Medicare Advantage plan that includes drug coverage. Every plan has its own formulary, pharmacy network, and cost structure, so comparing plans based on the specific drugs you take is essential.

In 2026, the $2,000 annual out-of-pocket cap, the $35 insulin cap, free vaccines, and Medicare drug price negotiation provide the strongest financial protections Part D has ever offered. If you do not enroll when first eligible and lack creditable coverage, you will face a permanent late enrollment penalty. Review your plan options each year during the Annual Enrollment Period, and apply for Extra Help if your income and resources are limited.

Prescription drugs are a major healthcare expense for most Medicare beneficiaries. Part D exists to make those costs manageable. Choosing the right plan and understanding how the benefit works can save you hundreds or even thousands of dollars each year.