Medicare Part D: How the Drug Cost Cap Works

1Why this matters

Drug costs are the part of Medicare that varies most from person to person and plan to plan. The same prescription can cost very different amounts under two plans, and plans change their drug lists and prices every year. The yearly cap introduced in 2025 limits the worst case, but choosing the right plan still matters for anyone who takes more than a few generics. This guide explains how the benefit works in 2026, with the 2027 figures, what counts toward the cap, and how to compare plans during the fall enrollment period. For how drug coverage fits with the rest of Medicare, see our guide to Medicare and Medicaid.

2What does Part D cover?

Each plan has a formulary, the list of drugs it covers, usually grouped into tiers with different costs, and a network of pharmacies. Plans must cover a range of drugs in each major category, but not every drug, so a plan that covers your medicines well can cost far less than one that does not.

• Covered insulin costs no more than $35 for a month's supply, and the deductible does not apply.
• Vaccines recommended for adults, such as shingles and Tdap, cost nothing.
• Drugs covered under Part B, such as some given in a doctor's office or for dialysis, are not Part D drugs.
• Plans can require prior authorization, step therapy or quantity limits for some drugs.

3How does the 2026 benefit work?

1. Deductible: you pay the full cost of covered drugs until you reach the plan's deductible, which cannot be more than $615 in 2026. Many plans set a lower deductible or none, at least for cheaper tiers.
2. Initial coverage: after the deductible you pay copays or coinsurance of no more than 25 percent of the cost of each covered drug, on average.
3. Catastrophic coverage: once your out-of-pocket spending reaches $2,100, covered drugs cost you nothing for the rest of the calendar year.

The old coverage gap, or donut hole, no longer exists. The cap and deductible are adjusted each year: for 2027 the cap is $2,400 and the maximum deductible $700, so check the figures for the year you are choosing a plan.

4What counts toward the cap?

What you pay for covered drugs counts: the deductible, copays and coinsurance. Payments made on your behalf also count, including by Extra Help, state pharmaceutical assistance programs, AIDS drug assistance programs, many charities and family members.

Your monthly premium does not count. Neither do drugs your plan does not cover, or drugs bought outside the plan's network without a good reason, or prescriptions you pay for with a discount card instead of your plan. Use your plan card at a network pharmacy so every dollar you spend counts.

Want to see what this could mean for your situation? Estimate your Medicare premium with our free calculator, including any income-related amount, which also applies to Part D.

5Spreading costs with the Medicare Prescription Payment Plan

The Medicare Prescription Payment Plan lets you pay your drug costs in monthly bills from your plan instead of all at once at the pharmacy. It is free, available in every Part D plan, and you can join at any time of year by contacting your plan; since 2026 many people who used it are renewed automatically.

It does not lower what you pay overall; it changes when you pay. For Helen in the example above, joining in January would turn a $711 January bill into payments of about $175 a month across the year. It helps most when one expensive prescription early in the year would strain a monthly budget, and least for people whose costs are low and steady.

6Negotiated drug prices

Since January 2026, Medicare-negotiated prices apply to the first ten drugs selected under the drug price negotiation program, including widely used medicines for diabetes, heart failure and blood clots. If you take one of them, your cost at the pharmacy may be lower than in earlier years, and the lower price also slows how fast you reach the deductible and cap. More drugs are scheduled to follow in later years.

7Choosing a plan

You can join or change a drug plan during the Annual Enrollment Period, October 15 to December 7, with the change taking effect January 1. In Medicare's plan finder, enter every drug you take, with the dose, and your preferred pharmacies, then compare the estimated total yearly cost of each plan, not just the premium.

• Check that each of your drugs is on the formulary and which tier it is in.
• Check whether your pharmacy is preferred, which can lower copays.
• Read the Annual Notice of Change your current plan sends each fall, which lists what will change.
• If you are choosing between Original Medicare and Medicare Advantage, see our guide comparing Original Medicare and Medicare Advantage.

Your State Health Insurance Assistance Program offers free, unbiased help comparing plans.

8Special situations

If a drug you need is not covered

When you first join a plan, it must give you a temporary supply, usually for a month, of a drug you already take that is not on its list, so you have time to switch or ask for an exception. You or your doctor can request a coverage exception, and if the plan says no, you can appeal. A doctor's statement that other drugs would not work for you carries the most weight.

If you have drug coverage from somewhere else

Coverage from a current or former employer, a union, TRICARE or the VA may count as creditable, which means you can skip Part D without a penalty. Your plan sends a notice each year saying whether it does; keep it. Before dropping employer coverage to join Part D, check whether doing so would also end your medical coverage.

If you move or enter a nursing home

Moving out of your plan's area, or into or out of a nursing home, opens a special enrollment period to change drug plans. People in nursing homes usually get drugs through a long-term care pharmacy that works with their plan.

9Late penalties and help with costs

If you go 63 days or more in a row without Part D or other creditable drug coverage after your initial enrollment period, a late enrollment penalty is added to your premium for as long as you have Part D. It is 1 percent of the national base premium, $38.99 in 2026, for each full month without coverage: 14 months means about $5.50 more each month.

If your income and savings are limited, Extra Help pays most of your Part D premium, removes the deductible, caps copays at $12.65 per covered drug in 2026 and removes the late penalty. Our guide to Medicare Savings Programs and Extra Help explains who qualifies, and our guide to Medicare sign-up deadlines explains how to avoid the penalty.

10Common mistakes

• Choosing a plan by premium without entering your drugs into the plan finder.
• Assuming last year's plan still covers your drugs at the same price. Check the Annual Notice of Change.
• Using a discount card instead of your plan card, so the spending does not count toward the cap.
• Going without drug coverage at 65 because you take no medicines, then paying a lifelong penalty later.
• Not asking for an exception when a needed drug is not on the formulary.

12What this does not tell you

Costs depend on the plan you choose and the drugs you take. The figures here are federal limits, and plans can charge less than the maximums.

Formularies, pharmacy networks and prices change every year. Check them in Medicare's plan finder during the fall enrollment period; our calculator estimates premiums, not drug costs.