Understanding Medicare Part D

How the 2026 benefit is structured

Part D now has three stages rather than four, and the catastrophic stage costs you nothing.

Stage	What you pay
Deductible	Full price until you've met the plan's deductible, up to $615
Initial coverage	Copays or coinsurance — standard design is 25%
Catastrophic	$0 for covered drugs once you reach $2,100 out of pocket

Source: CMS Final CY2026 Part D Redesign Program Instructions and Medicare.gov's Part D costs page. Plans may set a lower deductible than the maximum, and many charge none at all.

Formularies and tiers — where your real cost lives

Every plan publishes a formulary: the list of drugs it covers, arranged in tiers. The same medication can sit on tier 2 with one plan and tier 4 with another, changing your copay several-fold for identical treatment.

• Tier 1 — preferred generics, lowest copay.
• Tier 2 — generics.
• Tier 3 — preferred brand names.
• Tier 4 — non-preferred brands.
• Tier 5 — specialty drugs, usually coinsurance rather than a flat copay.

Plans can also apply prior authorization, step therapy, or quantity limits — restrictions that can interrupt a medication you're already stable on. Check for those, not just for coverage.

The $2,100 cap in practice

Before the cap existed, a specialty drug could cost thousands a year with no ceiling. Now, once your out-of-pocket spending on covered drugs reaches $2,100 in 2026, you pay $0 for covered drugs for the rest of the calendar year. It resets each January 1.

If reaching that cap early in the year would strain your budget, the Medicare Prescription Payment Plan lets you spread the same total across monthly instalments instead of paying it at the pharmacy counter. It doesn't reduce what you owe — it changes the timing.

The late-enrollment penalty

If you go 63 days or more without creditable prescription coverage after first becoming eligible, Medicare adds 1% of the national base beneficiary premium for each month you went without creditable drug coverage to your premium — permanently.

With a 2026 national base beneficiary premium of $38.99, each year without coverage adds roughly $4.68 a month, for as long as you have Part D. Coverage from an employer, union, or the VA usually counts as creditable — keep the annual letter that confirms it. Our Part D penalty estimator quantifies a gap.

Choosing a plan properly

The lowest premium is rarely the lowest total cost. Compare in this order:

1. Is every one of your drugs on the formulary?
2. What tier is each on, and are there restrictions?
3. What's the deductible, and does it apply to your tiers?
4. Is your pharmacy preferred, standard, or out of network?
5. What's the projected annual total — premium plus deductible plus copays?

You can run this yourself on Medicare Plan Compare, or we'll do it against the plans we offer in your county. We do not offer every plan available in your area. For a complete list of every plan in your county, use Medicare Plan Compare or call 1-800-MEDICARE.

Help paying for drugs

Extra Help — the Low-Income Subsidy — eliminates the Part D premium and deductible and caps copays at a few dollars per prescription. Apply free through Social Security; details on Medicare.gov.

Qualifying for a Medicare Savings Program automatically qualifies you for Extra Help, so it's worth applying for both. New Mexicans apply through the New Mexico Health Care Authority, and it costs nothing to try.

Reviewing it every year

Formularies, tiers, and premiums all change each January. A plan that was ideal last year can move your drug to a higher tier without any change in your health.

That's what the October 15 – December 7 Annual Enrollment Period is for, and why we re-run your drug list every autumn as part of your drug cost review.

Not sure which of these fits you? A free 15-minute call with a licensed local advisor sorts it out — no pressure, and no cost to you. We do not offer every plan available in your area. For a complete list of every plan in your county, use Medicare Plan Compare or call 1-800-MEDICARE.

Appealing a coverage decision

If a plan won't cover a drug, you have a formal right to challenge it, and these appeals frequently succeed when the prescriber supports them.

1. Coverage determination — ask the plan to cover the drug, or to cover it at a lower tier. Your prescriber's statement that alternatives are ineffective or harmful is the key evidence.
2. Redetermination — if refused, appeal to the plan.
3. Independent review — an outside entity reviews it next.
4. Further levels — an Administrative Law Judge, the Medicare Appeals Council, and ultimately federal court.

Expedited decisions are available where waiting would jeopardise your health. There's also a transition supply rule: when you join a new plan, it must generally cover a temporary fill of a drug you're already taking, giving you time to appeal or switch. We help with these at no cost — see claims support.

Ways to lower drug costs beyond the plan

Even the right plan leaves room to save, and these are worth asking about at every review.

• Generics and therapeutic alternatives — a different drug in the same class may sit two tiers lower for the same clinical effect. Your prescriber decides, but the question is worth raising.
• 90-day and mail-order fills — usually cheaper per dose than monthly retail on maintenance medications.
• Preferred pharmacies — the same plan can charge meaningfully less at a preferred pharmacy than a standard one, for the identical prescription.
• Manufacturer assistance programmes — many brand-name drugs have patient assistance for people who qualify.
• Paying cash — occasionally a discounted cash price beats your plan's copay on a cheap generic. It won't count toward your out-of-pocket total, so it's a trade-off worth checking.

None of these require changing plans, and together they often save more than switching would.

Getting the timing right in your first year

The first year of Part D catches people out more than any later one, because several things happen at once.

Your plan starts on your Medicare effective date, not the day you enrol, so a prescription filled in the gap is on you. If you're switching from employer coverage, ask the pharmacy to run both until you're certain the new plan is live. Keep the creditable-coverage letter from the old plan, because it's the evidence that protects you from the late penalty if anyone later questions the gap.

Watch the deductible in January: if your plan charges one, your first fills of the year cost full price until it's met, which surprises people who joined mid-year previously and never saw it. And if you join a plan while already taking a drug that needs prior authorisation, the transition-supply rule generally entitles you to a temporary fill while the authorisation is sorted — ask for it rather than paying cash.