What Is Part D?
Part D is Medicare’s prescription drug coverage. It’s offered through private insurance companies that contract with Medicare. You can get Part D two ways:
- Standalone Part D plan (PDP) - if you have Original Medicare + Medigap
- Built into Medicare Advantage - most MA plans include drug coverage (MAPD)
The Coverage Phases
Part D has a unique cost structure that changes throughout the year based on how much you and your plan spend on drugs. In 2026, here’s how it works:
Phase 1: Deductible
You pay full cost for your drugs until you’ve spent up to the plan’s deductible. Not all plans have a deductible, and some plans exempt certain drugs (like generics) from the deductible.
Phase 2: Initial Coverage
After the deductible, you and your plan share costs. You pay copays or coinsurance (the amount varies by drug tier) and the plan pays the rest.
Phase 3: Coverage Gap (Donut Hole)
The coverage gap has been largely eliminated. Manufacturers now provide discounts, and you continue paying a share similar to the initial coverage phase.
Phase 4: Catastrophic Coverage
Starting in 2026, there’s a hard cap on your out-of-pocket drug costs: $2,100 per year. After you hit this cap, you pay $0 for covered drugs for the rest of the year.
This cap is new and significant. Before 2025, there was no hard cap, and catastrophic costs could still be substantial.
Drug Tiers
Part D plans organize drugs into tiers, with different costs at each level:
- Tier 1: Preferred generics (lowest cost)
- Tier 2: Non-preferred generics
- Tier 3: Preferred brand-name drugs
- Tier 4: Non-preferred brand-name drugs
- Tier 5: Specialty drugs (most expensive)
The same drug can be on different tiers in different plans. This is why the “best” Part D plan depends entirely on which medications you take.
Why Plan Selection Matters
Two Part D plans can look identical on paper and cost you dramatically different amounts depending on your specific medications. A plan with a higher premium might have your medications on a lower tier, saving you money overall.
This is exactly the kind of analysis where professional help pays for itself. We can run your medications against available plans and show you the actual total annual cost for each option.
Late Enrollment Penalty
If you don’t sign up for Part D when you’re first eligible and don’t have other creditable drug coverage, you’ll pay a permanent penalty. The penalty is 1% of the national base beneficiary premium for each month you went without coverage.
This penalty lasts for as long as you have Part D coverage. It’s one of Medicare’s most expensive mistakes to make.
The Bottom Line
Part D is where Medicare gets genuinely complicated. The right plan this year might not be the right plan next year because formularies change. If you take multiple medications, an annual review of your Part D plan during open enrollment (October 15 - December 7) is worth the time.
The Medicare Plan Finder on Medicare.gov lets you enter your medications and compare Part D plans by total annual cost. It’s the best DIY tool available.