Medicare Part D covers outpatient prescription drugs — and the Inflation Reduction Act permanently capped what you pay at $2,000 per year starting in 2025. Here's how tiers, Extra Help, and enrollment windows work in 2026.
Medicare Part D covers outpatient prescription drugs for Medicare beneficiaries, available as a standalone plan or bundled inside Medicare Advantage. The Inflation Reduction Act permanently capped annual out-of-pocket drug costs at $2,000 starting in 2025 — eliminating the old coverage-gap exposure. Extra Help (LIS) reduces costs for lower-income enrollees. Missing your enrollment window creates a permanent monthly penalty.
Medicare Part D is the federal program that covers outpatient prescription drugs for Medicare beneficiaries — and it got a permanent structural overhaul in 2025 that carries directly into 2026. Here's how Part D works, what changed, and how to choose a plan.
Part D covers most prescription drugs you pick up at a pharmacy, including generics, brand-name medications, and specialty drugs on your plan's formulary. Drugs administered inside a hospital or physician's office typically fall under Medicare Part A or Part B instead.
Because Original Medicare (Parts A and B) doesn't include prescription drug coverage, beneficiaries need one of two options: - A standalone Prescription Drug Plan (PDP) — added on top of Original Medicare - A Medicare Advantage plan with drug coverage (MA-PD) — bundles drug coverage inside the plan
The Centers for Medicare & Medicaid Services (CMS) sets minimum coverage standards. Private insurers contract with CMS to offer actual plans, which is why premiums, formularies, and pharmacy networks differ plan to plan.
The most significant change to Part D in recent memory took effect in 2025 and applies fully in 2026. Section 11202 of the Inflation Reduction Act (Public Law 117-169) caps annual out-of-pocket costs on covered Part D drugs at $2,000 per beneficiary per year.
Before 2025, Part D had no hard out-of-pocket limit — beneficiaries who needed high-cost specialty drugs could face uncapped annual expenses. The $2,000 cap removes that financial exposure permanently.
Two supporting IRA provisions apply alongside the cap: - Medicare Prescription Payment Plan (M3P): Beneficiaries can spread their $2,000 annual out-of-pocket costs into monthly installments across the plan year, rather than absorbing large lump-sum costs when a specialty drug hits early in the year. - Manufacturer discounts in catastrophic phase: Drug manufacturers must now contribute discounts on brand-name drugs in the catastrophic coverage phase, shifting costs off beneficiaries.
Every Part D plan uses a formulary — a tiered list of drugs the plan covers. Most plans use five tiers:
| Tier | Drug type | Typical cost-sharing | |---|---|---| | Tier 1 | Preferred generics | Lowest copay ($0–$5) | | Tier 2 | Non-preferred generics | Low copay | | Tier 3 | Preferred brand-name drugs | Mid copay or coinsurance | | Tier 4 | Non-preferred brand-name drugs | Higher cost-sharing | | Tier 5 | Specialty drugs | Highest (often 25–33% coinsurance) |
The same drug can sit on Tier 1 in one plan and Tier 4 in another — a difference of hundreds of dollars per month on a specialty medication. This makes annual formulary comparison essential.
The 2025 standard deductible is $590, though many plans waive it for lower tiers. Under the IRA cap structure, the old coverage-gap ("donut hole") that used to expose beneficiaries to sharply higher cost-sharing at a spending threshold is effectively eliminated — once you reach $2,000 out of pocket in covered drug costs, you pay $0 for the rest of the year.
The federal Extra Help program (also called the Low Income Subsidy, or LIS) reduces Part D premiums, deductibles, and copays for beneficiaries with limited income and resources. Extra Help is administered by the Social Security Administration, not Medicare itself.
For 2025, full Extra Help is generally available to individuals with: - Income at or below approximately 150% of the Federal Poverty Level - Resources (savings, investments — excluding your home, vehicle, and burial funds) below approximately $17,000 for individuals or $34,000 for couples
These thresholds are indexed and adjusted annually. Full Extra Help enrollees typically pay $0 in Part D premiums and very low copays for most drugs. If you qualify for Medicaid, a Medicare Savings Program, or Supplemental Security Income (SSI), you automatically receive full Extra Help — no separate application needed.
Apply at SSA.gov or call 1-800-MEDICARE. There is no cost to apply and no downside to asking.
Part D enrollment follows specific windows — and missing them has lasting financial consequences.
Key enrollment periods: - Initial Enrollment Period (IEP): A 7-month window starting 3 months before your 65th birthday month and ending 3 months after - Annual Enrollment Period (AEP): October 15 – December 7 each year; changes take effect January 1 - Special Enrollment Period (SEP): Available when you lose creditable drug coverage (for example, when you retire and lose employer-sponsored drug benefits)
The late enrollment penalty applies if you go 63 or more consecutive days without Part D coverage or other "creditable" prescription drug coverage after you're first eligible. Creditable coverage is any coverage at least as good as the Part D standard — many employer plans, VA drug benefits, and TRICARE qualify.
The penalty equals 1% of the national base beneficiary premium for each month without coverage, added permanently to your monthly Part D premium. CMS sets the base premium annually — the 2025 figure is $36.78/month, so a 12-month coverage gap adds approximately $4.41/month to your premium permanently.
Keep documentation of any prior creditable coverage. You may need it to dispute a penalty if there's a gap on your record that you can explain.
CMS provides a Medicare Plan Finder at medicare.gov/plan-compare that lets you compare plans based on your specific medications. Enter your drugs and dosages to see: - Which plans cover them, and at which tier - Estimated annual total cost (premium + deductible + drug cost-sharing) - Pharmacy networks (cost-sharing often differs between preferred pharmacies, standard retail pharmacies, and mail-order)
Review every fall. Plans change formularies, pharmacy networks, and premiums every January 1. The Annual Enrollment Period (October 15 – December 7) is your window to switch. A plan that fit your drug list in 2025 may have moved your medications to a higher tier in 2026.
For questions about supplemental coverage on top of Original Medicare, see our guide to Medicare Supplement (Medigap) plans. If you're deciding between Original Medicare and Medicare Advantage, see Medicare Advantage vs. Original Medicare: Which Is Right for You?. For guidance on when to start Medicare, see our Medicare enrollment guide.
Part D covers most outpatient prescription drugs you pick up at a pharmacy, including generics, brand-name medications, and specialty drugs on your plan's formulary. Over-the-counter drugs, vitamins, and cosmetic medications are generally excluded. Drugs administered inside a hospital or physician's office typically fall under Medicare Part A or Part B, not Part D. Each plan publishes its formulary — the specific list of covered drugs — which changes annually.
Premiums vary by plan and location. CMS sets a national base beneficiary premium each year — $36.78 per month in 2025 — but individual plan premiums range from $0 to over $100 depending on the plan's coverage level and your county. Most enrollees also pay a deductible up to $590 (2025 standard) before drug coverage kicks in, though many plans waive it for lower tiers. The Inflation Reduction Act caps your annual out-of-pocket drug costs at $2,000 starting in 2025.
If you go 63 or more consecutive days without Part D or other creditable prescription drug coverage after you first become eligible, you'll pay a permanent late enrollment penalty equal to 1% of the national base beneficiary premium for each month you lacked coverage. That penalty is added to your monthly Part D premium for as long as you have Part D — it doesn't go away. Keep documentation of any prior creditable coverage (employer plan, VA, TRICARE) so you can dispute any incorrect penalty.
Extra Help (also called the Low Income Subsidy, or LIS) is a federal program that reduces Part D premiums, deductibles, and copays for enrollees with limited income and resources. For 2025, qualifying individuals generally have income below ~150% of the Federal Poverty Level and resources below ~$17,000 (individual) or ~$34,000 (couple). Full Extra Help enrollees typically pay $0 in premiums and very low copays. Apply through the Social Security Administration — eligibility for Medicaid, a Medicare Savings Program, or SSI automatically qualifies you for full Extra Help.
Yes. During the Annual Enrollment Period (October 15 – December 7), you can switch from one Part D plan to another, switch from a standalone PDP to a Medicare Advantage plan with drug coverage, or vice versa. Changes take effect January 1. Because plans revise their formularies, premiums, and pharmacy networks each year, it's worth comparing your current plan against alternatives annually using the Medicare Plan Finder at medicare.gov/plan-compare.