Medicare Part D: Prescription Drug Coverage Guide
Key Takeaways
- Out-of-pocket drug costs are now capped at $2,000/year thanks to the Inflation Reduction Act
- Insulin is capped at $35/month for all Medicare beneficiaries
- Part D is available as standalone plans or built into most Medicare Advantage plans
- Delaying enrollment can result in permanent late penalties
Table of Contents
What Is Medicare Part D?
Medicare Part D is prescription drug coverage provided by private insurance companies approved by Medicare. It helps cover the cost of prescription medications, including brand-name and generic drugs, as well as many vaccines.
You can get Part D coverage in two ways:
Standalone Part D Plan (PDP)
Adds drug coverage to Original Medicare. You purchase it separately alongside your Parts A & B coverage.
Medicare Advantage with Drug Coverage (MA-PD)
Most Medicare Advantage plans include Part D built in. About 90% of MA plans include prescription drug coverage.
How Part D Coverage Works
Part D coverage operates in phases. Here's how costs work as you spend more on medications throughout the year:
Deductible Phase
$0 – $590
You pay 100% of drug costs until you reach the annual deductible. Some plans have $0 deductibles, and many plans waive the deductible for Tier 1 and 2 drugs.
Initial Coverage Phase
$590 – varies
You pay copays or coinsurance based on your drug's tier. The plan pays the rest. This phase lasts until your total drug costs (what you and your plan pay combined) reach a certain amount.
$2,000 Out-of-Pocket Cap
At $2,000 total OOP
Once your true out-of-pocket spending reaches $2,000, you enter catastrophic coverage. This cap was established by the Inflation Reduction Act starting in 2025.
Catastrophic Coverage
After $2,000 OOP
You pay $0 for covered drugs for the rest of the calendar year. The plan and Medicare cover all costs. Resets January 1 each year.
Understanding Drug Tiers
Part D plans organize drugs into tiers, with each tier having a different cost. Lower tiers generally mean lower costs for you:
Lowest copay ($1–$15)
Examples: Lisinopril, Metformin, Amlodipine
Low copay ($5–$25)
Examples: Omeprazole, Gabapentin, Sertraline
Moderate copay ($25–$50)
Examples: Eliquis, Jardiance, Ozempic
Higher copay ($50–$100)
Examples: Less common brand medications
Highest cost (25-33% coinsurance)
Examples: Cancer drugs, biologics, infusions
Inflation Reduction Act: What Changed
The Inflation Reduction Act of 2022 brought the most significant changes to Medicare drug coverage in decades. Here are the key benefits now in effect:
$2,000 Annual Out-of-Pocket Cap
Starting 2025, your total out-of-pocket drug costs are capped at $2,000/year. After reaching this cap, you pay $0 for covered drugs for the rest of the year.
$35 Insulin Cap
Insulin costs are capped at $35 per month for a 30-day supply. This applies to all covered insulin products across all Part D and Medicare Advantage plans.
Free Vaccines
All Part D-covered vaccines (including shingles, Tdap, and others) are now available at $0 cost to you.
Medicare Can Negotiate Drug Prices
For the first time, Medicare can negotiate prices for certain high-cost drugs directly with manufacturers. The first 10 drugs were selected in 2023, with negotiated prices taking effect in 2026.
6 Ways to Save on Prescriptions
Use generic drugs when possible
Generics cost 80-85% less than brand-name drugs and are required to have the same active ingredients.
Check your formulary before choosing a plan
Plans cover different drugs at different tiers. A drug that's Tier 3 on one plan might be Tier 2 (cheaper) on another.
Use preferred pharmacies
Most Part D plans have preferred pharmacy networks with lower copays. CVS, Walgreens, and Walmart are common options.
Ask about the $35 insulin cap
All insulin is capped at $35/month under Medicare. If you're paying more, contact your plan.
Apply for Extra Help
If your income is below 150% of the federal poverty level, you may qualify for Extra Help, saving an average of $5,300/year.
Review your plan every year
Drug formularies change annually. A plan that was cheapest last year may not be the best choice this year.
Extra Help (Low Income Subsidy)
If you have limited income and resources, you may qualify for Extra Help — a federal program that significantly reduces your Part D costs. Qualifying beneficiaries save an average of $5,300 per year.
You May Qualify If:
- Annual income below $22,590 (single) or $30,660 (married couple) in 2026
- Resources below $17,220 (single) or $34,360 (married couple)
- You receive Medicaid, SSI, or Medicare Savings Program benefits
Don't Delay Part D Enrollment
If you go 63+ continuous days without creditable drug coverage and aren't enrolled in Part D, you'll face a permanent late enrollment penalty. The penalty is 1% of the national base premium ($34.70 in 2026) for each month you delayed — added to your premium for as long as you have Part D.
Need help finding the right drug coverage?
A licensed Medicare advisor can help you compare Part D plans based on your specific medications.
Disclaimer
We are not affiliated with Medicare or any government agency. This content is for informational purposes only. Drug costs and plan details are estimates and may vary. Medicare has neither reviewed nor endorsed this information.
Got Questions?
Frequently Asked Questions
It's strongly recommended. If you don't enroll when first eligible and don't have creditable drug coverage, you'll face a permanent late enrollment penalty of 1% of the national base premium for each month you delayed. Even if you're healthy now, medication needs can arise unexpectedly.
Each Part D plan has a formulary (list of covered drugs). Before choosing a plan, check that your medications are on the formulary and note which tier they're on. You can search formularies on Medicare.gov or contact plans directly. Our Benefit Checker can also help match you with plans that cover your medications.
The 'donut hole' or coverage gap was a phase where you paid a higher share of drug costs. Thanks to the Inflation Reduction Act, starting in 2025, out-of-pocket drug costs are capped at $2,000 per year — effectively eliminating the donut hole burden. After reaching the $2,000 cap, you pay $0 for the rest of the year.
Yes. Thanks to the Inflation Reduction Act, insulin costs are capped at $35 per month for a 30-day supply under all Medicare Part D and Medicare Advantage plans. This applies to all covered insulin products regardless of the plan's formulary tier.
Yes, you can switch Part D plans during the Annual Enrollment Period (October 15 – December 7) each year. Changes take effect January 1. You may also qualify for a Special Enrollment Period if you have a qualifying life event.
Extra Help (also called the Low Income Subsidy or LIS) is a federal program that helps people with limited income and resources pay for Part D premiums, deductibles, and copays. If you qualify, you could save an average of $5,300 per year on drug costs.
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