Part D prescription drug plans, explained without the jargon.
Every Part D plan has its own list of covered drugs, its own pricing tiers, and its own preferred pharmacy network. Pick wrong and a $20/month medication can become a $200/month medication. Here's how formularies, tiers, and the new 2026 $2,000 out-of-pocket cap actually work — and how to compare plans by your real costs, not the sticker price.
Key takeaways
- The formulary (list of covered drugs) — not the premium — decides what you actually pay over a year
- Most plans use 5 tiers from preferred generic ($0–$5) to specialty (coinsurance) — same drug can be tier-1 on one plan and tier-4 on another
- 2026 has a $2,000 annual out-of-pocket cap — once you hit it, you pay $0 for covered drugs the rest of the year. The donut hole is gone.
- Preferred pharmacies price drugs lower than standard pharmacies on the same plan — switching pharmacies can save real money
- Compare plans by annual total cost (premium + your year's copays), not by monthly premium
On this page
What a formulary is, and why it decides your costs
A formulary is the list of prescription drugs a Part D plan covers. Every plan has its own. If your medication isn't on the formulary, the plan generally won't pay for it — even if the drug is approved and legitimate.
That's why picking a plan by its monthly premium is a common and expensive mistake. Two plans in your ZIP code can have similar premiums and wildly different formularies. One might put your statin on Tier 1 with a $0 copay; another might not cover it at all.
Formularies also include utilization rules you'll want to know about:
- Prior authorization: the plan wants paperwork from your doctor before it will cover the drug
- Step therapy: you must try a cheaper alternative first
- Quantity limits: the plan caps how much you can fill per month
None of these are deal-breakers, but they're worth knowing about before you enroll — not when you show up at the pharmacy.
The tier structure on most Part D plans
Most Part D plans organize their formulary into five tiers, roughly:
- Tier 1 — Preferred generic: the lowest copay, often $0–$5 at a preferred pharmacy. Generic versions of common maintenance drugs live here.
- Tier 2 — Generic: generics that aren't on the preferred list. A bit higher than Tier 1.
- Tier 3 — Preferred brand: brand-name drugs the plan has negotiated favorable pricing on. Often a flat copay.
- Tier 4 — Non-preferred brand: higher-cost brands and some generics. Often coinsurance (a percentage) rather than a flat copay.
- Tier 5 — Specialty: very high-cost drugs, often for complex or chronic conditions. Usually coinsurance.
Two things make this more complicated than it looks: plans don't agree on which drug goes on which tier, and plans apply preferred vs. standard pharmacy pricing on top of that. The same prescription at the same plan can cost meaningfully less at the pharmacy the plan prefers.
Deductible, initial coverage, and the new $2,000 cap
Historically Part D had four phases, including the infamous "donut hole" coverage gap. The Inflation Reduction Act restructured that. For 2026, the flow is much simpler.
1. Deductible phase
Some plans have a deductible (up to the annual federal maximum, typically applied to higher tiers). Until you meet it, you often pay the full negotiated price for those drugs. Plans with $0 deductibles on preferred generics are common.
2. Initial coverage
Once past any deductible, you pay the copay or coinsurance shown on your plan's formulary. The plan pays the rest. Every dollar you pay counts toward your annual out-of-pocket total.
3. Catastrophic coverage — now with a $2,000 cap
Starting in 2025 and continuing in 2026, the Inflation Reduction Act set a hard $2,000 annual out-of-pocket cap on covered Part D drugs. Once your out-of-pocket spending hits $2,000, you pay $0 for covered medications for the rest of the calendar year.
This is a major change from past years, when people with serious chronic conditions could spend many thousands of dollars out of pocket. If you're on a specialty medication, the cap can change the math on which plan is best for you — and on whether your overall budget for the year is predictable.
What happened to the donut hole?
The traditional coverage gap phase has effectively been absorbed into the new structure. You may still hear the term "donut hole" used casually, but the steep costs people used to hit in that phase are gone. For 2026, think of Part D as: deductible (maybe) → copays and coinsurance → $2,000 cap → $0 for covered drugs.
Want us to run your prescriptions through every Part D plan in your ZIP?
Send us your medication list — we'll show you which plans cover each drug, what tier they're on, and your total annual cost on each plan, ranked. No premium, no obligation.
Compare plans by your actual medications, not premium
The cheapest plan on paper is rarely the cheapest plan for you. The right way to compare:
- List every medication you take — name, dose, and monthly quantity
- Check each candidate plan's formulary for that specific dose
- Note the tier, any prior authorization or step therapy flags, and whether there's a quantity limit
- Check preferred pharmacy pricing near you — many plans price the same drug differently at different pharmacies
- Consider mail-order, which often prices a 90-day supply at roughly 2 months' worth of copays
Then add it up: premium × 12 + any deductible you'd meet + your year's medication copays. That total — not the premium — is the number to compare across plans.
Mail-order and 90-day supplies
For maintenance medications, most plans offer 90-day supplies at mail-order or at select retail pharmacies for roughly the cost of 60 days at retail. That's not a universal rule, but it's common enough that it's worth checking on every plan you consider. For someone on several maintenance drugs, it can be the difference of a few hundred dollars a year.
Frequently asked
When can I change my Part D plan?
Do I really need a Part D plan if I don't take any medications?
What if a plan doesn't cover my drug?
Does Extra Help still exist in 2026?
Are Medicare Advantage drug plans different from standalone Part D?
Want someone to run the numbers on your meds?
Talk through your options with a licensed SilverEdge advisor. We'll compare Part D plans by your actual prescriptions — tier, pharmacy, and annual total — not by premium.