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Original Medicare (Parts A and B) doesn't cover most prescription medications. That's where Medicare Part D comes in—helping you pay for the drugs you need to stay healthy.
Part D has undergone significant improvements thanks to the Inflation Reduction Act. Starting in 2026, your out-of-pocket costs are capped at $2,100 per year—a massive change that provides real protection for people taking expensive medications.
Medicare Part D plans cover generic drugs, brand-name drugs, biologics, and some vaccines like the shingles vaccine. Plans do not cover over-the-counter medications (unless prescribed by your doctor), vitamins and supplements, drugs covered by Part B (like chemotherapy or certain injections), drugs for cosmetic purposes, or medications not approved by the FDA.
Part D has been dramatically simplified with three coverage phases:
Phase 1: Deductible - You pay 100% of drug costs until you reach your plan's deductible (maximum $590 in 2026, though many plans waive this).
Phase 2: Initial Coverage - You pay copays based on your drug's tier (Tier 1: $0-10, Tier 2: $10-20, Tier 3: $45-95, Tier 4: $95-150, Tier 5: 25-33%). This continues until your out-of-pocket costs reach $2,100.
Phase 3: Catastrophic Coverage - Once you've spent $2,100 out-of-pocket, you pay $0 for covered drugs for the rest of the year. This is the major 2026 improvement protecting people with expensive medications.
Monthly Premium: Varies by plan, typically ranging from $0 to $100+ per month. National average is approximately $46.50. High-income earners pay additional IRMAA surcharges ranging from $13.70 to $85.80 per month based on income from two years prior.
Deductible: Up to $590 maximum in 2026. Many plans offer $0 deductible, especially for generic medications.
Out-of-Pocket Maximum: $2,100. Once you hit this amount, you pay nothing for covered drugs for the rest of the year.
If you don't enroll in Part D when you're first eligible, you'll pay a permanent penalty of 1% of the national base premium for each month you were without creditable coverage.
2026 Example:
Exceptions: No penalty if you have creditable drug coverage from an employer, union, TRICARE, VA benefits, or federal employee health benefits. You must maintain creditable coverage without a gap of 63 days or more.
Part D plans organize drugs into tiers. Lower tiers mean lower costs. Tier 1 (Preferred generic) costs $0-10. Tier 2 (Generic) costs $10-20. Tier 3 (Preferred brand) costs $45-95. Tier 4 (Non-preferred brand) costs $95-150. Tier 5 (Specialty) costs 25-33% coinsurance.
Important: The same drug can be in different tiers depending on the plan. A medication that's Tier 1 in one plan might be Tier 2 or 3 in another.
Each Part D plan has a formulary—a list of covered drugs. Plan A might cover your medication while Plan B might not. Plans can require step therapy (trying a cheaper drug first) or prior authorization.
Medicare requires all Part D plans to cover at least two drugs in each category for protected classes: cancer drugs, antidepressants, antipsychotics, anticonvulsants, immunosuppressants, and HIV/AIDS drugs. For all other drugs, coverage varies significantly by plan.
Step 1: List all your medications with dosages and quantities.
Step 2: Choose your preferred pharmacy (retail or mail-order option).
Step 3: Enter your medications into Medicare's Plan Finder tool to compare which plans cover all your drugs, total annual costs, and tier placement.
Step 4: Enroll in the most cost-effective plan that covers everything you need.
Your Part D plan can change significantly from year to year, even if you don't switch plans.
What can change:
Real example: In 2025, your diabetes medication is Tier 2 with a $15 copay. In 2026, the same plan moves it to Tier 3 with a $75 copay. Annual difference: $720.
This is why you should review your coverage every year during the Annual Enrollment Period (October 15 - December 7). Re-enter your current medications and compare plans to ensure you're still in the best option.
Standalone Part D Plan: Used with Original Medicare. Separate from your medical coverage. Two separate cards.
Medicare Advantage with Part D (MAPD): Prescription coverage included in your Medicare Advantage plan. All-in-one coverage. One card for everything. Cannot have standalone Part D if you have Medicare Advantage.
Retail Pharmacies: Preferred in-network pharmacies (major chains like CVS, Walgreens, Publix) offer lower copays. Non-preferred or out-of-network pharmacies charge more.
Mail-Order Pharmacy: Often lower cost for 90-day supply. Convenient for maintenance medications. Typical savings: $60/year per medication compared to retail.
Best practice: Use mail-order for regular medications, retail for new prescriptions and antibiotics.
If you have limited income and resources, you may qualify for Extra Help.
See Medicare's instructions on applying for the Extra Help program.
2026 Eligibility: Individual income less than $23,166/year and resources under $17,220. Married income less than $31,402/year and resources under $34,360.
Coverage: Helps pay monthly premium, annual deductible, and reduces copays to $0-$11.20 per prescription. Can save thousands annually.
Medicare Part D provides essential prescription drug coverage with a new $2,100 annual cap that protects you from catastrophic drug costs. The key is choosing the right plan based on your specific medications and reviewing it every year as formularies and costs change.
At A&E Insurance Agency, we help you compare Part D plans based on your actual medications, find the most cost-effective option, and enroll at the right time. We also review your plan every October to ensure you're still getting the best value. Schedule a free consultation to find the right Part D plan for your needs.
