Medicare Part D is the component of Medicare that helps pay for prescription drugs. It is offered through private insurance companies approved by Medicare, and it works differently from most other insurance in ways that are worth understanding before you enroll.
Why does Medicare Part D exist as a separate program?
Original Medicare (Parts A and B) covers very few outpatient prescription medications. Part D was created specifically to fill that gap. It is offered through private insurance companies approved by Medicare and must be purchased as a separate plan if you have original Medicare. If you have Medicare Advantage, drug coverage is typically bundled into the plan.
Original Medicare (Parts A and B) provides very limited coverage for prescription medications. Part B covers certain drugs administered in a clinical setting - injections given at a doctor's office, for example - but it does not cover the medications most people pick up at a pharmacy. Part D was created to fill that gap.
Part D plans are standalone policies you purchase in addition to original Medicare. If you are on Medicare Advantage, drug coverage is typically bundled into the Advantage plan rather than purchased separately.
Is Part D Required?
Part D is optional, but skipping it can cost you later. If you go without creditable drug coverage for 63 or more consecutive days after becoming eligible, you may face a permanent late enrollment penalty added to your monthly premium for as long as you have Part D. If you have coverage through an employer or retiree plan, confirm whether it counts as creditable before deciding to skip Part D.
Part D is optional, but skipping it can have lasting consequences if you do not have other drug coverage.
According to Medicare.gov, if you go without creditable prescription drug coverage for 63 or more consecutive days after you first become eligible for Part D, you may face a late enrollment penalty when you do eventually sign up. The penalty is calculated as a percentage added permanently to your monthly Part D premium for as long as you have Part D coverage - and it is cumulative, meaning the longer the gap, the higher the penalty.
Creditable coverage means drug coverage that is at least as good as the standard Part D benefit. Coverage through a current employer, a retiree plan, TRICARE, or VA benefits may qualify as creditable. If you have other drug coverage, ask the plan administrator whether it is considered creditable for Medicare purposes - this should generally be provided to you in writing each year.
How do Medicare Part D plans work?
Each Part D plan covers a list of approved drugs called a formulary, organized into tiers that determine your copay or coinsurance. Your costs also depend on which pharmacies are in the plan's preferred network and whether your plan has a deductible. The same medication can cost significantly different amounts depending on which plan you choose.
All Part D plans cover a list of approved drugs called a formulary. According to Medicare.gov, formularies organize drugs into tiers, and your cost-sharing depends on which tier a drug falls into. Generic drugs typically appear in lower tiers with lower cost-sharing; specialty or brand-name drugs are often in higher tiers with higher cost-sharing.
Key concepts to understand:
Formulary. The list of drugs covered by a specific plan. Not every drug is on every plan's formulary. If you take a medication that is not on a plan's formulary, the plan generally will not cover it without an exception process.
Tiers. Drugs are grouped into tiers that determine your copay or coinsurance. The same drug can cost very different amounts depending on which tier a plan assigns it to.
Network pharmacies. Part D plans have preferred pharmacy networks. Filling a prescription at a preferred pharmacy in your plan's network typically costs less than filling it out-of-network.
Deductible. Some Part D plans have an annual deductible you pay before coverage begins. The maximum allowable deductible in 2026 is $615, though many plans charge less or none at all.
What is the Part D out-of-pocket cap, and when did it change?
As of 2025, Part D has a defined annual out-of-pocket cap, which eliminated the former coverage gap known as the "donut hole." In 2026, once your out-of-pocket drug spending reaches $2,100, your plan covers 100% of covered drug costs for the rest of the year. This is a meaningful improvement for people who take expensive medications.
Prior to 2025, Medicare Part D had a well-known coverage gap called the "donut hole" - a phase of coverage where beneficiaries faced higher out-of-pocket costs for a period before reaching catastrophic coverage. As of 2025, the donut hole has been eliminated as a result of the Inflation Reduction Act.
According to Medicare Resources (medicareresources.org), Part D now has three phases:
- Deductible phase (if your plan has one): you pay the full cost of covered drugs until your deductible is met
- Initial coverage phase: you pay your plan's copays or coinsurance for covered drugs until your total out-of-pocket spending reaches $2,100 in 2026
- Catastrophic phase: once you reach the $2,100 out-of-pocket limit, your plan pays 100% of the cost of covered drugs for the rest of the calendar year
The $2,100 figure is the 2026 limit and is indexed to adjust in future years. This cap is a meaningful improvement for people who take expensive medications, as it provides a defined ceiling on annual drug costs.
Can you spread out Part D drug costs throughout the year?
Yes. Starting in 2025, Medicare offers a Medicare Prescription Payment Plan that lets Part D enrollees spread out-of-pocket drug costs in equal monthly payments across the year rather than paying large amounts upfront. This may help people who fill expensive prescriptions early in the calendar year. Contact your Part D plan to enroll.
Starting in 2025, Medicare introduced a Medicare Prescription Payment Plan that allows Part D enrollees to spread their out-of-pocket drug costs in equal monthly payments throughout the year, rather than paying large amounts upfront early in the year. This option is available to anyone with a Part D plan and may be useful for people who fill expensive prescriptions in the first months of the calendar year. Contact your Part D plan directly to enroll.
Choosing a Part D Plan
The same drug can cost significantly different amounts under different Part D plans. Medicare.gov offers a Plan Finder tool that allows you to enter the medications you take and compare what each available plan in your area would actually cost you - factoring in the premium, deductible, and your specific drug costs under each plan's formulary and tier structure.
Comparing plans each year during the Annual Enrollment Period (October 15 to December 7) is generally worthwhile, because formularies and premiums change annually. The plan that worked best for your medication list last year may not be the lowest-cost option this year.
Is there help available for people who cannot afford Part D costs?
Yes. If your income and assets are below certain thresholds, you may qualify for Extra Help, a federal program that reduces Part D premiums, deductibles, and copays. This can make a significant difference in what you actually pay for prescription drugs each month. See our article on Medicare Savings Programs and Extra Help for more detail.
If your income and assets are below certain thresholds, you may qualify for Extra Help - a federal program that reduces Part D premiums, deductibles, and copays. See our article on Medicare Savings Programs and Extra Help for more detail.
Where to Learn More
- Medicare Plan Finder: medicare.gov/plan-compare - compare Part D plans based on your specific medications
- Part D overview: medicare.gov/drug-coverage-part-d
- Extra Help: ssa.gov/benefits/medicare/prescriptionhelp
- SHIP counselors: free Medicare help; find yours at shiphelp.org or call 1-800-677-1116
Part D plan premiums, formularies, and out-of-pocket limits change each year. Visit medicare.gov or speak with a SHIP counselor for current information specific to your situation. A SHIP counselor can give you personalized guidance on Medicare options in your area at no cost. Find yours at shiphelp.org.