Medicare Part D Explained: Drug Coverage, the $2,000 Cap, and How to Choose the Right Plan in 2026

By Rodney Cummings, RSSA® | Oregon Insurance License #18847712

If there’s one part of Medicare that consistently confuses beneficiaries, it’s Part D — prescription drug coverage. Between formularies, tiers, deductibles, IRMAA surcharges, and the major changes brought by the Inflation Reduction Act, Part D in 2026 looks very different from what it looked like just a few years ago.

This guide breaks it all down clearly: how Part D works, what changed, what Extra Help is, and how to choose the right plan for your medications.

What Is Medicare Part D?

Medicare Part D provides prescription drug coverage for people enrolled in Medicare. It was created by the Medicare Modernization Act of 2003 and launched in 2006. Part D is offered through private insurance companies that contract with Medicare — you don’t get Part D coverage directly from the federal government.

There are two ways to get Part D coverage:

Standalone Prescription Drug Plan (PDP) — paired with Original Medicare (Part A + B) and typically a Medicare Supplement (Medigap) policy
Medicare Advantage Prescription Drug Plan (MAPD) — Part D bundled into a Medicare Advantage plan (Part C)

If you have Original Medicare and a Medigap policy, you’ll need a separate standalone PDP. If you’re on a Medicare Advantage plan, your drug coverage is usually included — though the specific formulary and cost structure varies by plan.

The Big News: The $2,000 Out-of-Pocket Cap

The most important change to Medicare Part D in recent years is the $2,000 annual out-of-pocket cap on prescription drug spending, which took effect in 2025 under the Inflation Reduction Act of 2022.

What This Means for You

Before 2025, there was no cap on how much you could spend on Part D drugs in a year (outside of Extra Help/LIS). The infamous “donut hole” (coverage gap) was patched over the years but the overall exposure was still potentially unlimited for people on expensive specialty drugs.

Starting in 2025 (and continuing in 2026), once you’ve spent $2,000 out-of-pocket on covered Part D drugs in a calendar year, you pay $0 for the rest of the year. This is a genuine, meaningful protection for people on costly medications.

What Counts Toward the $2,000 Cap?

The following count toward your true out-of-pocket (TrOOP) spending:

Your annual deductible payments
Your copays and coinsurance during the initial coverage phase
The 5% cost-sharing that used to exist in the catastrophic phase (now eliminated)

What does NOT count: Plan premiums, amounts paid for drugs not on the formulary, or amounts paid for drugs at non-network pharmacies.

The End of the Donut Hole (Coverage Gap)

For years, the Medicare “donut hole” or coverage gap was one of the most confusing and frustrating aspects of Part D. You’d hit a threshold of total drug spending, enter the gap, and suddenly pay a much higher percentage of drug costs.

The Inflation Reduction Act effectively eliminated the coverage gap as a separate phase. The Part D cost structure in 2026 is now simplified to:

2026 Part D Cost Structure

Phase	What You Pay
Deductible	Up to $590 (2026 standard maximum) before coverage begins
Initial Coverage Phase	Your copay or coinsurance per tier until you hit $2,000 TrOOP
Catastrophic Phase	$0 — you’ve hit your $2,000 out-of-pocket cap

Once you’ve paid $2,000 out of your own pocket in a calendar year, the plan pays 100% for the rest of the year. No more donut hole. No more catastrophic 5% coinsurance. Full stop at $2,000.

Understanding Formularies and Drug Tiers

Every Part D plan has a formulary — a list of covered drugs. Plans organize drugs into tiers, with lower tiers generally costing less:

Tier	Typical Drugs	Typical Cost Share
Tier 1	Preferred generics	Very low copay ($0–$5)
Tier 2	Non-preferred generics	Low copay ($5–$15)
Tier 3	Preferred brand-name	Moderate copay ($30–$50)
Tier 4	Non-preferred brand-name	Higher coinsurance (40–50%)
Tier 5	Specialty drugs	Highest coinsurance (25–33%)

Not all drugs are on all plans’ formularies. If a drug you need isn’t on the formulary, you may have to pay full price, use a different drug, or request an exception from the plan.

Formulary Changes Mid-Year

Plans can change their formularies mid-year under certain conditions. If your plan drops a drug you’re taking or moves it to a higher tier, you should receive notice. You can request an exception or consider switching plans at your next Annual Enrollment Period (AEP) — October 15 through December 7 each year.

Annual Enrollment Period (AEP): Your Annual Decision Window

Every year from October 15 – December 7, Medicare beneficiaries can:

Switch from one Part D plan to another
Switch from Original Medicare to Medicare Advantage (or vice versa)
Join a Part D plan if you didn’t enroll during your Initial Enrollment Period

Changes take effect January 1 of the following year.

This is important: Even if you had a great plan last year, your medications or your plan’s formulary may have changed. I strongly recommend reviewing your Part D plan every year during AEP, especially if:

You’re taking new medications
Your current drugs moved to a higher tier
Lower-cost alternatives are now available

Part D Premiums and the Deductible

Monthly Premiums

Part D premiums vary widely by plan and by geography. In Oregon in 2026, standalone PDP premiums range from roughly $10–$100+/month. The lowest premium plan is not always the lowest total cost — you also need to factor in the formulary, tiers, and copays for your specific drugs.

Standard Deductible

The standard maximum Part D deductible in 2026 is $590. Some plans waive the deductible for Tier 1 and 2 drugs. Plans cannot set a deductible higher than $590.

Part D IRMAA: Surcharges for Higher-Income Beneficiaries

If your income is above certain thresholds, you’ll pay an Income-Related Monthly Adjustment Amount (IRMAA) surcharge on top of your Part D plan premium. This is in addition to any Part B IRMAA.

IRMAA is based on your Modified Adjusted Gross Income (MAGI) from two years prior. For 2026, the look-back year is 2024.

2026 Part D IRMAA Surcharges

2024 Income (Single)	2024 Income (Married Filing Jointly)	Part D IRMAA Surcharge
≤ $106,000	≤ $212,000	$0 (no surcharge)
$106,001 – $133,000	$212,001 – $266,000	+$13.70/month
$133,001 – $167,000	$266,001 – $334,000	+$35.30/month
$167,001 – $200,000	$334,001 – $400,000	+$69.90/month
$200,001 – $500,000	$400,001 – $750,000	+$84.00/month
Above $500,000	Above $750,000	+$96.40/month

Note: Surcharge amounts are approximate — confirm current amounts at medicare.gov.

IRMAA is paid directly to Medicare, not to your Part D plan. It’s deducted from your Social Security benefit if you’re collecting Social Security.

Can You Appeal an IRMAA Determination?

Yes. If your income dropped significantly due to a life-changing event (retirement, divorce, death of spouse, loss of income), you can file a Medicare IRMAA appeal using Form SSA-44. You can request a reduction based on your current, lower income rather than the two-year-old income used for the determination.

This is something I help clients navigate regularly — a successful IRMAA appeal can save hundreds of dollars per year.

Extra Help: The Low-Income Subsidy (LIS)

If you have limited income and resources, you may qualify for Extra Help (also called the Low-Income Subsidy or LIS) — a federal program that helps pay Part D premiums, deductibles, and copays.

2026 Extra Help Eligibility

You may qualify if your annual income is below approximately 150% of the Federal Poverty Level and you have limited assets. For 2026:

Single: income approximately ≤ $22,590/year (guidelines updated annually)
Married: income approximately ≤ $30,660/year

Assets generally must be below $17,220 (single) or $34,360 (married) — excluding your home, one car, and burial expenses.

What Extra Help Provides

With full Extra Help:

$0 deductible on Part D
Very low copays — as little as $1.20–$4.20 for generics and $4.20–$9.90 for brand-name drugs
No coverage gap penalties
Ability to enroll or switch plans at any time (not just AEP)

How to Apply

Apply for Extra Help through:

Social Security Administration: ssa.gov/medicare/part-d or by calling 1-800-772-1213
Your State Health Insurance Assistance Program (SHIP) — Oregon’s SHIP is called SHIBA (Senior Health Insurance Benefits Assistance), reachable at 1-800-722-4134
Some states have additional state-funded low-income assistance programs

How to Choose the Right Part D Plan

The single most important step is running a personalized drug plan comparison using your actual list of medications. Here’s how to do it:

Step 1: List All Your Medications

Write down every prescription drug you take: name, dosage, and frequency. Include both brand-name and generic names if you know them.

Step 2: Use Medicare Plan Finder

Go to medicare.gov/plan-compare and enter your zip code, medications, and preferred pharmacies. The tool will show you:

All Part D plans available in your area
Estimated annual drug costs for each plan based on YOUR specific medications
Each drug’s tier status and requirements (prior authorization, step therapy, quantity limits)

Step 3: Compare Total Annual Cost — Not Just Premium

The plan with the $15/month premium may actually cost you MORE than the $45/month plan if your drugs are on higher tiers. Always compare:

Annual premium × 12
Estimated annual drug costs (shown in Plan Finder)
Deductible

Add these up for your estimated total annual cost. The lowest total is what matters.

Step 4: Check Pharmacy Network and Preferred Pharmacies

Most Part D plans have preferred pharmacies where your copays are lower. Make sure your preferred pharmacy is in the network — and ideally a preferred pharmacy — before enrolling.

Step 5: Consider Mail Order

Many plans offer 90-day supply by mail at lower cost per dose. If you take maintenance medications (blood pressure, cholesterol, diabetes), mail order can cut your drug costs significantly.

Part D and Medicare Supplement (Medigap) Interaction

If you have a Medigap policy (Medicare Supplement), you’ll need a separate standalone Part D plan because Medigap does not cover prescription drugs. Your Medigap policy covers cost-sharing on Medicare Part A and Part B services — not drugs.

This is different from Medicare Advantage, where drug coverage is usually bundled in.

When Should You Enroll in Part D?

Initial Enrollment Period (IEP)

When you first become eligible for Medicare (turning 65 or enrolling due to disability), you have a 7-month window: 3 months before your birthday month, your birthday month, and 3 months after.

If you miss your IEP and don’t have creditable drug coverage (through an employer plan, TRICARE, VA, etc.), you’ll face a late enrollment penalty: 1% of the national base beneficiary premium per month you went without coverage. This penalty is permanent — it’s added to your premium for life.

Qualifying Life Events

Outside of AEP and IEP, you can change Part D plans if you experience a qualifying life event: moving out of the plan’s service area, losing other creditable coverage, qualifying for Extra Help, or several other situations.

Key Takeaways for Oregon Medicare Beneficiaries

The donut hole is gone — replaced by a clean $2,000 annual out-of-pocket cap (effective 2025)
Compare plans every year at AEP (October 15 – December 7) — your drugs and formularies change
Use Medicare.gov Plan Finder with your actual drug list for an accurate cost comparison
Apply for Extra Help if your income and assets are modest — it’s free and can dramatically reduce drug costs
Watch for IRMAA if your income is above $106,000 (single) or $212,000 (married) — and appeal it if your income has dropped
Don’t forget the late enrollment penalty — enroll on time or maintain creditable coverage

Need Help Choosing a Medicare Plan?

Choosing the right Medicare plan — Part A, B, C, D, and Supplement — is one of the most consequential decisions you’ll make in retirement. The wrong combination can cost you thousands of extra dollars per year.

I help Oregonians turn 65 every day, and I work with a wide range of carriers to find the right Medicare solution — whether that’s a Medicare Advantage plan, a Medigap policy with a standalone Part D plan, or a specialized structure that fits your health situation and budget.

📅 Schedule a free Medicare consultation

📞 Call or text: 503-832-8555

There’s no cost to work with me — I’m compensated by the insurance carriers. You get expert guidance at no charge to you.

Rodney Cummings, RSSA® is a licensed Medicare insurance professional serving clients throughout Oregon and beyond. Oregon Insurance License #18847712. This article is for educational purposes and reflects plan year 2026 information to the best of our knowledge — always verify current details at medicare.gov or by calling 1-800-MEDICARE. This is not legal or tax advice.

Legacy Wealth Services | 503-832-8555 | legacywealthservices.com