How Medicare Part D Drug Plans Work in 2026

This is an update to my post How Medicare Part D Drug Plans Work in 2025. Part D drug plans were dramatically redesigned starting in 2025 largely due to the Inflation Reduction Act of 2022. The most dramatic changes were the elimination of the coverage gap (donut hole) drug coverage stage and the introduction of an annual maximum out-of-pocket cap for prescription drug costs. Here's what to expect of your Part D drug plan in 2026.

What is Medicare Part D and Do I Have It?

Medicare Part D is a voluntary outpatient prescription drug benefit for people with Medicare provided through private plans from carriers that contract with the federal government. "Outpatient prescription drug" simply means the prescriptions you pick up at the pharmacy. (Other drugs, for example, drugs administered in a medical office or setting, are covered under Medicare Part B, not Part D.) If you are on Original Medicare (Part A & Part B) with a Medicare Supplement, you likely have a stand-alone Part D prescription drug plan (PDP) for which you pay a separate premium and have a separate member ID card. If you are on a Medicare Advantage plan (aka, Part C, and which replaces Original Medicare) then your PDP is likely part of the Medicare Advantage plan (or MAPD, for Medicare Advantage Prescription Drug plan).

The entire list of drugs covered by a PDP is called the formulary. Each drug in the formulary is assigned to a cost tier which determines what you will pay for a drug. Typically, there are five cost tiers, 1 through 5, with most generics assigned to cost tiers 1 or 2 and brand name and specialty drugs assigned to tiers 3 through 5.

Some may not have a PDP at all because they have other prescription drug coverage Medicare considers to be "creditable", meaning that it is at least as comprehensive (“actuarially equivalent”) as a Part D PDP. The most common examples would be Veterans Administration (VA) coverage or Tricare for Life. Many veterans get their drugs through their VA coverage and do not need to be enrolled in a Part D PDP.

Drug Coverage Under Medicare is Not Like Drug Coverage in Under-65 Health Plans

Until you transitioned your health care to Medicare, you were likely covered by employer group health (EGH) or Affordable Care Act (ACA, aka, Obamacare) coverage via the healthcare.gov health insurance marketplace. Under those plans, if the co-pay for a medication is $10 in January, it is still $10 in June and again in December. That IS NOT how Medicare drug plans work. Instead, PDPs introduce what are called "stages of coverage" as illustrated in the lead graphic for this post.

Stages of Coverage

The important thing to remember here is that, as you and the plan spend money on your prescription drugs, the plan is keeping track of those costs, referred to as true -out-of-pocket costs (TrOOP). TrOOP is what triggers the different stages of coverage. If the TrOOP reaches a stage-triggering threshold, you move into the next stage of drug coverage, and the cost of your drugs to you changes. The stages are:

1. Deductible stage. For 2026, the maximum deductible is $615 but your deductible may be less depending on how your plan is structured. Most stand-alone PDPs use the maximum deductible; most MAPDs have a lower or no deductible. On many plans, the deductible does not apply to tier 1 and tier 2 drugs, so unless you're taking name brand drugs, you are shielded from the deductible. Anything you pay toward your deductible counts toward the $2,100 maximum out-of-pocket cap for the plan year.

2. Initial coverage stage. You stay in the initial coverage stage until your TrOOP reaches $2,100 in 2026. Many Medicare beneficiaries will never leave the initial stage of coverage. In this stage, you are paying usually reasonable co-pays (a fixed amount) or perhaps coinsurance (a percentage of the cost of the drug) for lower tier drugs.

3. Catastrophic stage. Once TrOOP reaches $2,100 in 2026, you leave the initial coverage stage and enter the catastrophic stage. In this stage, you pay nothing for your drugs. The cost of your drugs is covered by the plan, the manufacturer and Medicare.

Important note about TrOOP: TrOOP spending follows you if you switch plans during the plan year. When you switch from one Medicare Part D plan to another during the year, your TrOOP balance is transferred to the new plan. Medicare has processes to transfer this balance starting when you disenroll and then enroll in the new plan, with updates repeating to include any late claims.

Is This Exactly What My Part D Plan Will Look Like in 2026?

The plan structure as presented here is what CMS refers to as the Part D defined standard benefit and serves as a reference for all Part D plans offered in plan year 2026. It forms the actuarial basis for what your drug coverage will look like. In other words, Part D plans must offer either the defined standard benefit or an alternative equal in value (“actuarially equivalent”) and can also provide enhanced benefits. While all plans will adhere to the three payment stages of the standard benefit plan and will also feature the $2,100 annual cap on out-of-pocket costs, plans have leeway to adjust things like deductible, co-pay and coinsurance amounts as long as the resulting plan design is equal in value to the defined standard benefit plan. Specific details of the Part D plan designs for 2026 are available at Medicare.gov after October 1st, 2025.

The Medicare Prescription Payment Plan

If you have high drug costs, you may benefit from the Medicare Prescription Payment Plan, or M3P as I'll refer to it here. Think of it as an interest-free installment loan to pay for your prescription drugs over the course of the plan year. For details, see my article: All About the Medicare Prescription Payment Plan

Cost Containment Measures Used by All Medicare Drug Plans

The following cost containment measures are used in all Medicare Part D drug plans including both standalone PDPs and the drug plans included in many Medicare Advantage plans:

• Prior Authorization: Prior authorization limits coverage of a drug to patients who meet certain requirements. Before you can fill the prescription, the prescriber (your doctor) must contact your plan to show the drug is medically necessary and that you meet certain requirements.

• Step Therapy: Step therapy is a type of prior authorization. In most cases, you must first try a certain, less expensive drug on the plan’s formulary that’s been proven effective for most people with your condition before you can move up a “step” to a more expensive drug.

• Quantity Limits: For safety and cost reasons, plans may limit the amount of prescription drugs they cover over a certain period of time.

When researching different drug plans, it's possible to see in advance if a drug you are taking is subject to any of these cost containment measures.

A Word About IRMAA

If your income is such that CMS levies an income-related monthly adjustment amount (IRMAA) for your Part D coverage, that amount will be collected by the Social Security Administration directly by the same payment method you use to pay your monthly Part B premium. Note that the IRMAA charge is not part of the drug plan premium. When CMS publishes the 2026 IRMAA chart it will be linked here.

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