How Part D works
Part D prescription drug plans are sold by private insurance companies. Each plan has a formulary — a list of covered drugs organized into tiers, with lower tiers costing less. When you fill a prescription, you pay your tier-based copay or coinsurance until you hit the annual out-of-pocket cap.
The $2,000 out-of-pocket cap (2026)
Starting in 2025 and continuing in 2026, Part D has a hard cap of $2,000 per year on your out-of-pocket drug costs. Once you reach $2,000 in covered drug costs, your plan pays 100% for the rest of the year. This protects people on expensive medications like cancer drugs or biologics.
Medicare Prescription Payment Plan: You can also opt to spread your drug costs across monthly installments throughout the year rather than paying large amounts at once. This doesn't change your total cost — just the timing.
The late enrollment penalty
If you don't enroll in Part D when you're first eligible AND you don't have other creditable drug coverage (like through an employer), you'll pay a permanent late enrollment penalty of 1% of the national base beneficiary premium per month you were without coverage. This penalty is added to your Part D premium permanently — it never goes away.
Example: If you went 24 months without creditable drug coverage, your penalty is 24% added to your Part D premium every month for the rest of your life.
Extra Help (Low Income Subsidy)
People with limited income and resources may qualify for Extra Help — a federal program that helps pay Part D premiums, deductibles, and copays. In 2026, you may qualify if your individual income is below $23,000 or household income below $31,000. Apply through SSA.gov or your local Social Security office.
How to choose a Part D plan
- List your medications: Know the exact name, dosage, and quantity of every drug you take.
- Use Medicare Plan Finder: Go to Medicare.gov and compare plans based on your specific drugs and pharmacy.
- Check your pharmacy: Using a preferred pharmacy in the plan's network significantly lowers costs.
- Don't just look at the premium: A $0 premium plan may cost more overall if your drugs are on a high tier.
- Review annually: Plans change their formularies every year. Review your plan every October during Open Enrollment.