Medicare Part D, Explained

Medicare Part D is prescription drug coverage. Original Medicare — Parts A and B — pays for hospital and medical care, but with narrow exceptions (mostly drugs administered in a doctor's office or hospital), it does not pay for the prescriptions you fill at a pharmacy. Part D exists to cover those. The coverage is sold by private insurance companies under Medicare's rules, which is why premiums, drug lists, and pharmacy networks differ from plan to plan even though the basic framework is set by Medicare.

There are two ways to get it:

• A standalone prescription drug plan (PDP). This rides alongside Original Medicare — and alongside a Medigap plan if you carry one. No Medigap plan sold today includes drug coverage, so a separate Part D plan is how Medigap households cover prescriptions.
• Drug coverage built into a Medicare Advantage plan. Some Medicare Advantage plans include Part D as part of the package. If yours does, you generally don't add a standalone drug plan on top — in most cases, joining one would disenroll you from the Advantage plan.

Either route counts as Part D. What matters is having creditable drug coverage from the time you're first eligible — the penalty section below explains why the timing is the part people regret getting wrong.

Part D costs come in layers, and every layer varies by plan:

• Monthly premium. Set by each plan and it varies widely. Higher-income households also pay an income-related amount on top, billed by Medicare rather than the plan.
• Deductible. A plan may charge up to $615 in 2026 before coverage begins. Many charge less, and some skip the deductible for lower drug tiers — read the plan's own numbers, not the maximum.
• Copays and coinsurance. What you pay per prescription until you reach the cap.
• The out-of-pocket cap. Once your spending on covered drugs reaches $2,100 in 2026, you pay nothing more for covered drugs the rest of the year. This cap is recent, and it changes the worst case: a serious diagnosis mid-year no longer means unlimited pharmacy bills.
• The insulin cap. Covered insulin is capped at $35 for a month's supply, and the deductible does not apply to it. That is federal law, not a plan feature.

One more option worth knowing: you can ask your plan to spread your drug costs across the year in monthly installments (the Medicare Prescription Payment Plan). It doesn't lower the total — it smooths it, which can matter if your costs land early in the year.

Here is the rule, and it is worth reading twice. If you go 63 days or more without Part D or other creditable drug coverage after your Initial Enrollment Period ends, Medicare adds 1% of the national base beneficiary premium ($38.99 in 2026) for every full uncovered month to your premium — rounded to the nearest ten cents — for as long as you have Medicare drug coverage. Two uncovered years is a 24% add-on, every month. The percentage generally lasts for as long as you have Part D coverage, and because it's recalculated against each year's base premium, the dollar amount grows whenever the base premium does.

The exception that matters is creditable coverage. Months when you had drug coverage at least as good as Part D — through an employer or union plan, VA benefits, or TRICARE — don't count as penalty months. Your plan is required to tell you each year whether its coverage is creditable; keep those notices — your plan counts the uncovered months, and the notices are your evidence in Medicare's LEP reconsideration process if the count is ever wrong.

And one program erases the penalty entirely: if you qualify for Extra Help, you don't pay a Part D late-enrollment penalty at all.

To see what your own gap would cost, use our Part D penalty calculator — it applies exactly this math to your months.

A formulary is a plan's list of covered drugs, and no two plans' lists are identical. Drugs are grouped into tiers — typically preferred generics at the bottom, then generics, preferred brands, non-preferred drugs, and specialty drugs at the top. The lower the tier, the less you pay per fill.

Plans also attach rules to some drugs:

• Prior authorization — the plan must approve the drug before it will pay.
• Step therapy — you try a lower-cost alternative first.
• Quantity limits — a cap on how much is covered at a time.

None of these is a final no. You and your prescriber have the right to request an exception — to cover a drug that isn't on the formulary, to skip a step-therapy requirement, or to move a drug to a lower tier — and the plan must answer within set timeframes. If it refuses, you can appeal, and the appeal process has several levels.

The practical takeaway: check your drugs before you choose a plan. List every prescription and its dose, then look each one up on a plan's formulary — the tier it sits on and any rules attached. A low premium tells you nothing about how a plan treats your particular medicine list; the formulary does. It depends entirely on the list.

Extra Help is a federal program, run through Social Security, that pays some or most of Part D's costs — premiums, deductibles, and copays — for people with limited income and resources. If you qualify, the late-enrollment penalty disappears entirely, no matter how long your gap was.

Some people get it automatically: anyone with Medicaid, Supplemental Security Income, or a Medicare Savings Program is enrolled without applying. Everyone else applies through Social Security. The income and resource limits change each year, and they're higher than many people assume — your home and your car don't count toward the resource limit. Plenty of people who would qualify never apply because they guessed at the answer instead of checking.

Our Extra Help checker walks through the current limits in plain language. If you're anywhere near the line, apply — the determination is Social Security's to make, not yours, and a "no" costs you nothing.

Part D plans change every January — premiums, deductibles, formularies, tiers, pharmacy networks, and the rules attached to individual drugs. A plan that fit your medicine list well this year can move one of your drugs to a higher tier, add prior authorization, or drop it entirely next year. That isn't a scandal; it's how the program works. The counterweight is a habit:

• September: your plan mails an Annual Notice of Change (ANOC). Read it with your drug list in hand — the changes that matter are the ones touching your own prescriptions and your own pharmacy.
• October 15 – December 7: Medicare's Open Enrollment. This is the window to compare your current plan against the alternatives for the coming year and switch if your own numbers say to.

If the ANOC shows nothing that touches your drugs and your pharmacy stays in network, keeping your plan is a perfectly good outcome — the review is the point, not the switching. And if reading formularies isn't how you want to spend an October afternoon, an advisor can run the comparison with you against your actual prescription list; our advisors are paid by the insurance carrier, not by you.