Medicare Part D Explained: Costs, Formularies and the End of the Donut Hole
Medicare Part D is Medicare’s prescription drug coverage. It is optional, and it is sold by private insurance companies that Medicare approves, either as a stand-alone drug plan or bundled inside a Medicare Advantage plan. Medicare describes it as help paying for brand-name and generic drugs, and it is offered to everyone with Medicare. What you pay depends on the plan you pick, which drugs you take and which pharmacy you use. This guide walks through each piece, including the “donut hole” many people still ask about.
TL;DR
- Part D is optional drug coverage from private insurers. You can buy a stand-alone plan or get it inside a Medicare Advantage plan.
- The donut hole (coverage gap) was eliminated in 2025. In 2026 your yearly out-of-pocket cost for covered drugs is capped at $2,100, rising to $2,400 in 2027.
- Every plan has its own formulary, a list of covered drugs sorted into tiers. Check your exact prescriptions against each plan before you enrol.
- Skipping Part D without other creditable coverage can mean a permanent late enrollment penalty.
- If you have limited income and resources, Extra Help can cut your premiums and copays.
Table of Contents
- How Part D works
- What you pay: premiums, deductible, copays and the cap
- The donut hole is gone
- Understanding your plan’s formulary
- Do you need Part D if you are healthy?
- Extra Help for people with limited income
- When you can join or change a plan
- A short checklist before you choose
- Help comparing Part D plans in Northern Illinois and Southern Wisconsin
- FAQ
- Sources
How Part D works
Original Medicare (Parts A and B) covers hospital and medical care but generally not the drugs you pick up at the pharmacy. Part D fills that gap. You choose a plan, pay a monthly premium, and then share the cost of each prescription with the plan.
There are two ways to get it:
- A stand-alone prescription drug plan (PDP). You add it to Original Medicare, often alongside a Medicare Supplement (Medigap) plan.
- A Medicare Advantage plan with drug coverage (MA-PD). Drug coverage is built into the plan, and you generally cannot add a separate PDP on top.
If you are weighing those two paths, our breakdown of Medicare Advantage vs. Medicare Supplement shows how the choice changes your drug coverage options.
The market is concentrated. According to KFF’s 2026 analysis, five firms cover nearly 74% of enrollees. Even so, plans from the same company can differ a lot in drugs covered, pharmacies and cost.
What you pay: premiums, deductible, copays and the cap
Part D costs have four moving parts.
- Premium. A monthly amount that varies by plan. Medicare notes that higher-income enrollees may pay an extra amount. If that could apply to you, see our guide to the Medicare IRMAA income lines.
- Deductible. What you may pay before the plan starts sharing costs. Some plans have none. The maximum allowed is $615 in 2026 and $700 in 2027, per the same Medicare cost page.
- Copayments or coinsurance. Your share of each prescription after the deductible. It depends on the drug’s tier.
- Out-of-pocket cap. Once your yearly spending on covered drugs reaches the limit, you pay $0 for covered Part D drugs for the rest of the calendar year. Medicare lists the limit as $2,100 in 2026, and the 2027 figure is $2,400.
Stand-alone plans versus drug coverage inside Medicare Advantage
KFF reports that the average monthly premium in 2026 is $36 for stand-alone PDPs and $8 for MA-PDs. About 8 in 10 MA-PD enrollees without low-income subsidies pay no Part D premium, compared with about 3 in 10 PDP enrollees.
A lower premium is not automatically the better deal. Medicare Advantage plans come with their own networks, referral rules and medical copays. A Part D premium is one line in a bigger comparison, and the right answer depends on your doctors, your drugs and your budget.
| Stand-alone PDP | MA-PD (Medicare Advantage with drugs) | |
|---|---|---|
| Paired with | Original Medicare, often with Medigap | Replaces Original Medicare |
| Average 2026 premium (KFF) | $36 per month | $8 per month |
| Drug coverage | Separate plan you choose | Built into the plan |
| Doctor and hospital choice | Any provider that accepts Medicare | Depends on the plan’s network rules |
The donut hole is gone
For years, Part D had a stretch in the middle of the year where your costs jumped: the coverage gap, nicknamed the donut hole. That is why searches for it remain so common. The National Council on Aging reports that the donut hole was eliminated in 2025, leaving three phases:
- Deductible, if your plan has one.
- Initial coverage, where you pay copays or coinsurance.
- Catastrophic coverage, which in 2026 starts once your out-of-pocket costs reach $2,100 and you pay nothing more for covered drugs that year.
So if you are asking how to avoid the donut hole, the answer is that you no longer need to. The better question now is how to keep your spending under the cap, and that starts with choosing a plan whose formulary and pharmacy network fit your prescriptions.
Spreading costs through the year
A $2,100 or $2,400 cap is protective, but a big bill in January can still sting. Medicare’s Prescription Payment Plan lets you spread your out-of-pocket drug costs across the calendar year in monthly payments instead of paying at the pharmacy counter. Medicare says all plans offer it, participation is voluntary and there is no added cost. It is worth asking about if you take an expensive brand-name drug.
Understanding your plan’s formulary
A formulary is the list of drugs a plan covers. Medicare says all plans must cover a wide range of drugs, but which ones, and what tier each sits in, differ from plan to plan. Lower tiers usually mean lower copays, and brand-name or specialty drugs tend to sit higher.
Plans can also set rules on certain drugs. Medicare lists prior authorization, step therapy and quantity limits among them:
- Prior authorization: your doctor must get approval before the plan covers the drug.
- Step therapy: you try a lower-cost drug first.
- Quantity limits: the plan limits how much you can get at a time.
If a drug you take is not covered or has one of these rules, you or your doctor can ask the plan for an exception. When you first join a plan, you may also get a one-time transition supply of a drug you were already taking, so you have time to sort it out (details are on Medicare’s plan rules page above).
Formularies can change during the year
A formulary is not frozen. Plans can add generics or change tiers mid-year, and they generally must give notice before removing a drug. Read your plan’s Notice of Change mailings each fall and recheck on Medicare’s Plan Finder if a prescription suddenly costs more than expected.
A worked example of why plan choice matters
Say you take a generic blood pressure pill, a cholesterol medicine and one brand-name diabetes drug. Plan A lists the brand drug on a high tier with step therapy. Plan B puts it on a middle tier with no extra rules but charges a higher premium. Plan A’s premium looks lower, yet your yearly cost could be higher, and you might have to try a different drug first. You only see that by entering your actual list of drugs and your pharmacy into a comparison tool. That is what Medicare recommends too: use the Plan Finder with your real medication list, since it is the only way to see how each plan covers and prices your drugs.
Do you need Part D if you are healthy?
Many people turning 65 take few or no prescriptions and wonder about skipping Part D. The risk is the late enrollment penalty. Per Medicare’s penalty publication, it applies if you go 63 or more days in a row without Part D or other creditable drug coverage after your Initial Enrollment Period.
The math: the penalty is 1% of the national base beneficiary premium for each full month you went without coverage, rounded to the nearest $0.10. The 2026 base premium is $38.99, so 12 uncovered months would be about 12% of $38.99, or roughly $4.70 added to your monthly premium. It is permanent, and it follows you for as long as you have Part D, even if you switch plans. People who get Extra Help are exempt.
That is a small number for one year and a large one over a retirement. Enrolling when you are first eligible is generally recommended, and many people choose a low-premium plan just to be protected.
What counts as creditable coverage
If you have drug coverage from a current or former employer or union, you may not need a Part D plan right away, as long as that coverage is creditable, meaning it is expected to pay on average at least as much as Medicare’s standard coverage. Your plan must tell you each year whether it is. Keep that notice. If Medicare or your new plan asks about your prior coverage, answer by the deadline: the burden of proving creditable coverage falls on you, and a missed form can lead to a penalty you then have to dispute.
Extra Help for people with limited income
Extra Help is a federal program that lowers Part D costs. Medicare lists the 2026 limits at $23,940 in annual income and $18,090 in resources for an individual. If you qualify, you pay $0 for premiums and deductibles, much smaller copays, and no late penalty.
These limits are higher than many people expect, so apply even if you think you are over. Resources are counted by specific rules, and they differ between programs. If you are also looking at SSI, a Spanish-language explainer on what counts toward the SSI resource limit shows how that program treats assets.
If you have both Medicare and Medicaid, you generally get Extra Help automatically. Our post on Medicaid vs. Medicare costs when you qualify for both covers how the two fit together.
When you can join or change a plan
Your first chance is your Initial Enrollment Period around turning 65. After that, the main window to change plans is the fall Open Enrollment Period, which runs October 15 to December 7 for coverage starting January 1. We explain the rest of the calendar in Medicare enrollment periods, explained simply.
We are inside that window now. Because the Part D cap rises from $2,100 to $2,400 in 2027 and the maximum deductible from $615 to $700, as reported in a 2027 Part D overview, and a federal program that held down stand-alone premiums ends after 2026, your plan’s 2027 costs may differ from this year’s. Read the Annual Notice of Change your plan sent, then compare it against your current drug list.
A short checklist before you choose
- Write down every prescription, with dose and how often you take it.
- Note the pharmacies you want to use, and whether a preferred pharmacy offers lower copays.
- Enter the list in Medicare’s Plan Finder and compare total yearly cost, not only the premium.
- Check each drug for prior authorization, step therapy or quantity limits.
- Ask your doctor whether a lower-tier alternative would work for you.
- Check whether you qualify for Extra Help.
- Review again each fall, since plans and your medications change.
Help comparing Part D plans in Northern Illinois and Southern Wisconsin
If you would rather not do this alone, we can help. Almond Insurance is a Medicare agency in Rockford, Illinois, and we explain options in plain language, without jargon. Our Part D prescription review looks at your actual medications and compares plans against them, and you can read more about Part D plans we offer guidance on. We are paid by insurance carriers when you enrol in a plan, so you do not pay us for the advice. When you are ready, start at our enrollment page.
FAQ
What prescriptions are not covered by Part D?
Plans must cover a wide range of drugs, but each plan decides which specific drugs are on its formulary, and any drug can come with rules like prior authorization. If your drug is not covered, you or your doctor can ask the plan for an exception. Check each plan’s formulary before you enrol.
Is there still a donut hole in 2026?
No. The coverage gap was eliminated in 2025. In 2026 you pay your deductible if there is one, then copays or coinsurance, until your out-of-pocket costs reach $2,100. After that you pay $0 for covered Part D drugs for the rest of the year.
What do most people pay for Part D?
It varies by plan. KFF puts the 2026 average monthly premium at $36 for stand-alone drug plans and $8 for Medicare Advantage plans with drug coverage. You also pay any deductible and copays, and total yearly cost on covered drugs is capped.
Can I skip Part D if I take no medications?
You can, but you risk a permanent late enrollment penalty if you go 63 or more days without creditable drug coverage after your Initial Enrollment Period. If you have creditable coverage from an employer or union, you may be fine. Confirm with the notice your plan sends each year.
Sources
- Your Guide to Medicare Drug Coverage, Medicare.gov
- Medicare Part D Enrollment, Premiums, and Cost Sharing in 2026, KFF
- Costs, Medicare.gov
- Your Medicare in 2026: What You Need to Know, Medicare.gov
- The Medicare Part D Donut Hole, National Council on Aging
- What’s the Medicare Prescription Payment Plan?, Medicare.gov
- How do drug plans work?, Medicare.gov
- Drug plan rules, Medicare.gov
- The Part D Late Enrollment Penalty, Medicare.gov
- Creditable prescription drug coverage, Medicare.gov
- Help with drug costs, Medicare.gov
- Medicare Part D 2027 Explained
- Límite de bienes para SSI: qué cuenta y qué no