What Is Medicare Part D?

Medicare Part D is prescription drug coverage. Private insurance companies sell the plans, Medicare sets the rules, and you pay a monthly premium to the company you choose for the medications you pick up at a pharmacy or receive by mail.

Original Medicare, Parts A and B, covers hospital and medical care, not the prescriptions you fill at the pharmacy, apart from narrow exceptions such as drugs given in a doctor’s office. Part D fills that gap, and it is optional in name only: go without it, or without other creditable drug coverage, and a penalty starts building.

Part D is not one plan. In any zip code there are dozens of drug plans, each with its own premium, deductible, list of covered drugs, and pharmacy network. Two neighbors with the same prescriptions can pay very different amounts because they chose different plans, or because one of them never looked again after the first year.

This is educational, not personalized advice. Your prescriptions, your pharmacy, and your income decide what fits you.

Two Ways to Get Part D

A standalone drug plan. If you keep Original Medicare, with or without a Medicare Supplement, you add a standalone Part D plan: a separate policy with its own card and its own premium.

Inside a Medicare Advantage plan. Most Advantage plans bundle drug coverage with the medical side. One card, one company. The same Part D rules apply, so the formulary, the tiers, and the pharmacy network still matter.

One rule trips people up. If your Advantage plan includes drug coverage and you join a standalone drug plan, Medicare treats that as leaving the Advantage plan. You land back on Original Medicare with a drug plan and nothing covering the gaps. To change how your drugs are covered while on Advantage, you change the whole Advantage plan.

Key point: Either way, a Part D plan is a one-year contract. Premiums, drug lists, and pharmacy networks reset every January 1. That is why the fall review exists.

Still working past 65 with employer drug coverage? Read leaving employer coverage before you decide.

The Four Cost Pieces in 2026

Every Part D plan, standalone or inside Advantage, has the same four cost pieces.

Source: CMS, 2026

The income surcharge. If your modified adjusted gross income from two years ago was above $109,000 (single) or $218,000 (married filing jointly), you pay an extra $14.50 to $91.00 a month for Part D in 2026, depending on the bracket. It goes to Medicare, not the plan, and for 2026 the look-back year is 2024. Spelled out, this is the Income-Related Monthly Adjustment Amount, or IRMAA.

The donut hole is gone. The coverage gap older guides describe was eliminated in 2025 and stays gone in 2026.* Now it is deductible, then copays or coinsurance, then the cap.

Watch out: Premiums do not count toward the cap, and neither does a drug your plan does not cover. A low premium with the wrong formulary can cost more over a year than a higher premium with the right one.

How the $2,100 Cap Works

What counts: your deductible, copays, and coinsurance for drugs your plan covers. When that total reaches $2,100 in a calendar year, the plan pays the full cost of covered drugs through December 31.* On January 1 the meter resets.

What does not count: your monthly premium, drugs not on your plan’s formulary, and drugs Part B covers instead, such as infusions given in a clinic. Certain payments made on your behalf, such as through the Extra Help program, do count toward the $2,100.*

The Medicare Prescription Payment Plan. Every Part D plan offers an option to spread your out-of-pocket drug costs into monthly installments across the plan year.* It does not lower what you owe; it changes when you pay it. You opt in through your plan: medicare.gov/prescription-payment-plan.

The cap protects you only for drugs on your plan’s list, which makes the list, not the premium, the whole decision.

Formularies, Tiers, and Why the Same Drug Costs Differently

What a formulary is

A formulary is the list of drugs a plan covers. Medicare requires every plan’s list to include at least two drugs in the most commonly prescribed categories and classes, and most drugs in certain protected classes, such as drugs that treat cancer, HIV/AIDS, or depression.* Beyond that, each plan builds its own list, so a drug on one list may be missing from another.

Tiers and restrictions

Plans sort covered drugs into tiers. Lower tiers, usually generics, carry the smallest copays. Higher tiers, brand names and specialty drugs, carry larger copays or a percentage of the price. The same drug can sit on tier 2 in one plan and tier 4 in another, and that placement can outweigh the difference in premiums. Plans also add restrictions: prior authorization, step therapy, and quantity limits. Two plans can cover the same drug with different rules.

Preferred pharmacies

“In network” and “preferred” are not the same word. The copays a plan advertises are usually its preferred-pharmacy copays. A pharmacy can be in the network and still cost more per fill.

A couple in their 70s had used the same neighborhood pharmacy for twenty years. Their plan listed it in the network, so they assumed the copays in the plan summary applied. They did not. The pharmacy was standard, not preferred, and every fill cost more than the number they had read. The fix was not a new plan. It was a preferred pharmacy a few miles away, or mail order, on the plan they already had. The teaching point: check your pharmacy’s status, not just whether it is in the network.

The plan that changed its list on January 1

A retired teacher in her late 60s came in one February with a bill she did not understand. One of her long-standing medications had come off her plan’s formulary on January 1. The plan had told her the previous fall, in an Annual Notice of Change she had set aside unopened because nothing ever seemed to change. By February the window to switch had closed. Her options were an exception request through her doctor, or full price until the next Annual Enrollment. The teaching point: the plan you have in December is not the plan you have in January. Read the notice, every year.

The Late Enrollment Penalty and Creditable Coverage

The penalty is 1% of the national base beneficiary premium ($38.99 in 2026) for every full month you went without Part D or other creditable drug coverage after you were first eligible, rounded to the nearest 10 cents, and added to your premium for as long as you have Part D.* Because the base premium changes each year, the penalty changes too. It is permanent.

To make it concrete: 20 full months without coverage is 20 times 1%, a 20% penalty. $38.99 times 0.20 is $7.798, which rounds to $7.80 a month, added to the premium of whatever plan you choose, for as long as you have Part D.*

Creditable coverage is drug coverage expected to pay, on average, at least as much as standard Medicare drug coverage. Drug coverage from a current or former employer or union, TRICARE, the Indian Health Service, or the Department of Veterans Affairs can qualify. Whoever provides that coverage must tell you in writing whether it is creditable, every year before October 15. Keep those letters.

The penalty applies once you have gone 63 days or more in a row without Medicare drug coverage or other creditable coverage after your Initial Enrollment Period ends. That period is 7 months: the 3 months before the month you turn 65, your birthday month, and the 3 months after.

A man in his early 70s got a letter from a new drug plan adding a penalty to his premium. He had left his job a few years earlier, took no medications, and saw no reason to pay for a drug plan. Reasonable, and wrong: Part D is priced on the assumption that people join when eligible, not when they first need a prescription. The plan asked him to list his prior coverage. The months he could document as creditable came off. The months he could not stayed on, and have followed him to every plan since. Sometimes the letter is simply wrong, and there is a form to attest to prior coverage. The teaching point: the penalty is about months without proof of coverage. Keep the proof.

Watch out: “I don’t take anything” is the most expensive sentence in Part D. Coverage you do not use costs a premium. Coverage you skip costs a penalty, plus the year you need it and do not have it.

The Annual Notice of Change: What Changes January 1

Every September, your plan mails an Annual Notice of Change.* It tells you, in writing, what will be different on January 1. Six things can change:

• Premium
• Deductible
• Formulary: drugs added, dropped, or moved to another tier
• Copays and coinsurance on each tier
• Pharmacy network, including which pharmacies count as preferred
• Restrictions: prior authorization, step therapy, quantity limits

Plans can also leave Medicare. If your plan’s contract is not renewed for the coming year, you get a separate non-renewal notice, and a Special Enrollment Period from December 8 through the last day of February to pick a new plan.*

Key point: “My plan didn’t change” is almost never true. The name on the card is the same. The terms are not.

What to do with the notice: find your drugs by name in the formulary changes, check that your pharmacy is still preferred, and compare the new premium and deductible to this year’s. If anything moved, run the numbers before December 7. If you are already on Medicare, this is the one piece of mail worth opening the day it arrives.

When You Can Switch Plans

• Annual Enrollment Period, October 15 to December 7. Anyone with Medicare can join, drop, or switch a Part D plan, standalone or inside Advantage. Changes take effect January 1.*
• Initial Enrollment Period. The 7-month window around your 65th birthday.* Just starting? Read turning 65.
• Leaving employer coverage. A Special Enrollment Period. The Part B window is 8 months after employment or group coverage ends. The Part D window is shorter: 2 full months after the month your employer or union coverage ends.
• Medicare Advantage Open Enrollment, January 1 to March 31. Only for people already on an Advantage plan: switch to another Advantage plan, or drop it, return to Original Medicare, and join a standalone drug plan.*
• Other Special Enrollment Periods. Moving out of your plan’s service area (2 full months after the move), your plan’s contract with Medicare ending or not being renewed, losing other creditable drug coverage (2 full months after the month it ends), and having Medicaid or Extra Help, which allows one plan change per calendar month, among others.* Each has its own deadline.

Outside those windows, you stay in the plan you have. A new prescription in April is an exception request, not a plan change. Full list: medicare.gov, joining a plan.

How We Run a Prescription Cost Analysis

We do not start with a plan. We start with your list.

1. Every prescription: name, dose, how many, how often. Plus the pharmacies you actually use, and whether mail order is acceptable to you.
2. Every plan. We run that list against every Part D plan in your zip code: the standalone plans and the drug coverage inside every Advantage plan we can see.
3. Total annual cost, not premium. Twelve months of premium, plus the deductible, plus what your drugs cost at your pharmacy under each plan’s tiers and rules, with the $2,100 cap applied.
4. Side by side, on the screen. In our offices or on a call, you see every plan we compared, and you get a written summary afterward.
5. Every fall. The Annual Notice of Change resets the math, so we repeat the analysis before December 7.

That is how a Certified Medicare Planner® works. It is our own standard, not a government credential, and you can read what it promises you.

A woman in her late 70s sat through her review, saw that a different plan would have cost her less over the year, and chose to stay where she was. Her pharmacist knew her by name, the pharmacy was on her morning walk, and the routine was worth the difference to her. The teaching point: the analysis exists so the choice is made on purpose, not by default.

New to all of this? Start with how Medicare works. The workshop on Friday, October 2, 2026 walks through all four parts in an hour: reserve a seat at the Medicare workshop.