8.2 Medicare Part D (Prescription Drugs)

Medicare Part D Overview

Medicare Part D is the voluntary prescription drug benefit, delivered through private insurers either as standalone Prescription Drug Plans (PDPs) for people in Original Medicare or bundled into Medicare Advantage Prescription Drug (MAPD) plans. It was created by the Medicare Modernization Act of 2003 and began in 2006.

Quick Answer: Part D covers outpatient prescription drugs through private PDPs or MAPD plans. In 2026 the deductible is $615, the out-of-pocket cap is $2,100, and once that cap is reached the beneficiary pays $0 in the catastrophic phase. The Inflation Reduction Act added a $35 insulin cap and $0 ACIP adult vaccines.

2026 Standard Benefit Structure

The Inflation Reduction Act (IRA) of 2022 significantly restructured Part D. The 2026 benefit has three main phases:

Key point: the $2,100 out-of-pocket cap in 2026 (up from $2,000 in 2025) is the threshold at which the beneficiary enters the catastrophic phase with no cost sharing. The cap counts true out-of-pocket spending, not total drug costs.

IRA Reforms (2024–2026)

• OOP cap phased in — $4,000 in 2024 (no catastrophic cost sharing), $2,000 in 2025, and $2,100 in 2026 (indexed annually thereafter).
• $35 insulin cap — effective 2023, cost sharing for a month's supply of covered insulin is capped at $35.
• $0 ACIP adult vaccines — adult vaccines recommended by the Advisory Committee on Immunization Practices (ACIP), such as shingles (Shingrix), Tdap, and pneumococcal, are covered at $0 cost sharing even before the deductible is met.
• Medicare Prescription Payment Plan (M3P) — allows beneficiaries to spread out-of-pocket drug costs across monthly payments instead of paying large amounts at the pharmacy all at once.

Manufacturer Discount Program (Replaces the Donut Hole)

The donut hole coverage gap was fully eliminated in 2025. It is replaced by the Manufacturer Discount Program, in which drug manufacturers provide discounts on brand-name drugs during the initial coverage phase. Beneficiaries no longer experience a gap; they simply pay 25% coinsurance until they reach the $2,100 out-of-pocket cap.

Late Enrollment Penalty

A beneficiary who goes 63 or more consecutive days without creditable drug coverage (coverage at least as good as standard Part D) after becoming eligible pays a penalty: roughly 1% of the national base beneficiary premium multiplied by the number of uncovered months, added permanently to the monthly premium. The penalty is recalculated each year as the base premium changes, so the dollar amount can rise over time.

Extra Help / Low-Income Subsidy (LIS)

Extra Help is a federal subsidy for beneficiaries with limited income and resources. It pays Part D premiums, deductibles, and cost sharing, and it eliminates the late enrollment penalty. The IRA expanded full Extra Help so that more people with limited income qualify. Extra Help enrollees are assigned to a PDP or MAPD with premiums below a regional benchmark.

Creditable Coverage and Coordination with Other Drug Coverage

Before dropping other drug coverage, a beneficiary should obtain a notice of creditable coverage from their employer, union, or other plan. This written notice confirms whether that coverage is at least as good as standard Part D. If it is creditable, the beneficiary can delay Part D enrollment without owing a late enrollment penalty later. COBRA continuation, TRICARE, the Federal Employees Health Benefits Program (FEHBP), and VA health coverage are generally creditable. Beneficiaries who drop creditable coverage and enroll in Part D later should keep their creditable coverage notices in case CMS questions a penalty calculation.

Formularies and Tiers

Each plan publishes a formulary — a list of covered drugs organized by tier, from preferred generics (lowest cost sharing) up to specialty drugs (highest cost sharing). Plans must cover at least two drugs in each therapeutic category or class and must offer essentially all drugs in six protected classes: antidepressants, antipsychotics, anticonvulsants, immunosuppressants, antineoplastics, and antiretrovirals.

Standalone PDP vs. MAPD

• Standalone PDP — paired with Original Medicare (and often a Medigap policy) for drug coverage only.
• MAPD — bundles Part D drug coverage into a Medicare Advantage plan; the beneficiary gets medical and drug coverage in one plan.

A beneficiary in an MA-only plan (without drug coverage) generally must enroll in a standalone PDP to avoid the late enrollment penalty.

Key Exam Pointers

• The 2026 out-of-pocket cap is $2,100; the catastrophic phase begins after this amount is spent.
• Standalone PDPs are for Original Medicare beneficiaries; MAPD bundles drug coverage into MA.
• $35 insulin cap and $0 ACIP vaccines apply even before the deductible is met.
• Late enrollment penalty equals 1% of the national base premium times the number of uncovered months, and it is permanent.
• Extra Help (LIS) eliminates the late enrollment penalty and pays most cost sharing for low-income beneficiaries.