Medicare reference · 6 min read
Medicare Part D Explained: Prescription Drug Coverage
Medicare Part D is prescription drug coverage offered through private plans approved by Medicare. You can get it as a stand-alone plan (with Original Medicare) or built into most Medicare Advantage plans. A major change: starting in 2025 the old "donut hole" coverage gap was replaced with a yearly out-of-pocket cap — $2,000 in 2025 and $2,100 in 2026 — after which your covered drugs cost you nothing for the rest of the year.
How Part D works
Each Part D plan has a formulary — a list of covered drugs organized into tiers. Lower tiers (generics) cost less; higher tiers (brand-name and specialty drugs) cost more. Plans also have their own premiums, deductibles, and pharmacy networks, so the right plan depends on the specific medications you take.
The 2026 out-of-pocket cap
Thanks to the Inflation Reduction Act, Part D now has a hard annual cap on what you pay out of pocket for covered drugs: $2,000 in 2025 and $2,100 in 2026. Once you reach it, you pay $0 for covered drugs for the rest of the calendar year. You can also spread your drug costs across the year through the Medicare Prescription Payment Plan.
Drug tiers
- Tier 1–2: preferred and generic drugs — lowest cost.
- Tier 3: preferred brand-name drugs.
- Tier 4: non-preferred drugs.
- Tier 5: specialty (high-cost) drugs.
Common questions
Is the Medicare donut hole gone?
Yes. Starting in 2025 the coverage-gap "donut hole" was replaced by a yearly out-of-pocket cap on covered drugs ($2,000 in 2025, $2,100 in 2026). After you reach the cap, covered drugs cost you nothing for the rest of the year.
Do I need Part D if I take no medications?
It is usually wise to enroll when first eligible even if you take few drugs, because going without creditable drug coverage can trigger a lifelong Part D late-enrollment penalty.
Sources
CreditMango is independent and not affiliated with or endorsed by Medicare, CMS, the Social Security Administration or any insurer. This is general information for 2026, not medical, insurance or financial advice; rules and costs change every year. For free, unbiased one-on-one help, contact your State Health Insurance Assistance Program (SHIP) at shiphelp.org ↗ or call 1-800-MEDICARE.