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If you take prescriptions regularly, Part D is the part of Medicare that matters most to your wallet. It is also the part with the most moving pieces: premiums, deductibles, drug tiers, and a cap on yearly spending that changed the math for expensive medications.
Part D is sold by private insurers, either as a standalone plan paired with Original Medicare or bundled into a Medicare Advantage plan. Every Part D plan has to cover at least two drugs in each therapeutic category, but plans choose their own formularies, so the same drug can cost very different amounts depending on the plan.
The three phases in 2026
Medicare simplified Part D starting in 2025. The old “donut hole,” where you paid full price for drugs in a coverage gap, is gone. What remains is three phases.
First, the deductible phase. You pay the full cost of covered drugs until you meet your plan’s deductible. For 2026, the maximum deductible a plan can charge is $615. Many plans charge less, and some waive the deductible entirely for generic drugs. One exception applies no matter what: insulin is capped at $35 for a month’s supply from day one, in every phase, without needing to meet the deductible first.
Second, the initial coverage phase. After the deductible, you pay copays or coinsurance for covered drugs until your total out-of-pocket spending reaches $2,100. In practice that usually means a flat copay for generics and 25 percent coinsurance for brand-name drugs.
Third, catastrophic coverage. Once you have spent $2,100 out of pocket on covered drugs in the calendar year, you pay $0 for covered prescriptions for the rest of the year. For anyone on specialty drugs that cost thousands a month, this cap is the difference between manageable and impossible.
Drug tiers decide what you pay
Every Part D plan sorts drugs into tiers. Tier 1 is usually preferred generics with the lowest copay. Tier 2 is non-preferred generics. Tier 3 covers preferred brand-name drugs. Tiers 4 and 5 are specialty drugs, usually priced with coinsurance instead of a flat copay. If your plan moves one of your drugs to a higher tier at renewal, your cost jumps even though nothing about your prescription changed. That is why rechecking your plan every fall matters more than the premium alone. Our guide to how drug tiers and formularies work walks through the tier system in detail.
The late enrollment penalty is permanent
If you go without creditable drug coverage for 63 days or more after your initial enrollment period ends, Medicare adds a penalty to your Part D premium: 1 percent of the national base premium for every month you went uncovered, and it lasts as long as you have Part D. With the 2026 base premium at $38.99, a year of delay adds roughly $4.70 a month, forever. Going years without coverage makes the penalty real money.
The fix is simple. Enroll in a Part D plan when you first become eligible, even if you take no prescriptions. The cheapest plan in your area buys you penalty protection.
If money is tight, Extra Help exists
The Low Income Subsidy, called Extra Help, pays Part D premiums and deductibles for people with limited income and resources, and caps copays at $5.10 for generics and $12.65 for brand-name drugs in 2026. Many people who qualify never apply. You can apply through Social Security at any time of year, and it is worth checking even if you assume you earn too much.
Compare plans against your actual drugs
Premiums get the headlines, but the formulary decides your costs. Before each open enrollment, make a list of every prescription you take, then run it through the plan finder on medicare.gov. Two plans with nearly identical premiums can differ by hundreds of dollars a year once your specific drugs and your preferred pharmacy are factored in. Sometimes a cash discount card beats the plan price on a cheap generic, which is the subject of our GoodRx vs insurance breakdown. Check both before you assume the plan price is the best price.
