Understanding the 2026 Medicare Part D Out-of-Pocket Cap and the Three Stages of Drug Coverage

By Mike Miligi | Michael M Insurance Services

For years, Medicare Part D had a reputation for being confusing and, at times, genuinely painful — especially once someone hit the infamous “donut hole.” That’s gone now. The Inflation Reduction Act completely redesigned Part D, and as of 2025 there’s a hard annual cap on what anyone pays out of pocket for covered prescription drugs. Here’s exactly how the redesigned benefit works in 2026, the three stages you’ll move through during the year, and the payment option that can make a real difference if your drug costs hit hard and early.

What Changed: The End of the “Donut Hole”

Before the redesign, Part D had four stages, including the coverage gap — commonly called the donut hole — where beneficiaries with high drug costs actually paid a larger share of their prescription costs for a stretch of the year before catastrophic coverage kicked back in. It was one of the most-complained-about features in all of Medicare
The Inflation Reduction Act eliminated the coverage gap entirely, starting in 2025. Part D now has just three stages, and instead of a confusing formula based on total drug spending, there’s a straightforward dollar cap on what you personally pay out of pocket in a year. Once you hit it, you’re done paying for covered drugs for the rest of the calendar year.

The Three Stages of Part D Coverage in 2026

Stage 1: Deductible You pay 100% of your drug costs until you meet your plan’s deductible. For 2026, no Part D plan can charge a deductible higher than $615. Many plans set it lower, and some waive it entirely or apply it only to certain drug tiers — always worth checking your specific plan’s structure. Stage 2: Initial Coverage Once your deductible is met, you enter the initial coverage phase. Here, you generally pay 25% coinsurance on your covered drugs. The math behind that 25% is shared three ways: your Part D plan covers 65% of the cost, and under the Manufacturer Discount Program, drug manufacturers are required to cover the remaining 10% on applicable brand-name drugs. You stay in this phase until your out-of-pocket spending for the year reaches the annual cap. Stage 3: Catastrophic Coverage Once your total out-of-pocket spending for covered drugs reaches $2,100 for 2026, you move into catastrophic coverage — and you pay $0 for the rest of the calendar year on covered Part D drugs. This is the single biggest change from the old system: there’s no more gap where costs go back up before this kicks in. It’s a clean, hard stop. What Counts Toward the $2,100 Cap This annual limit is sometimes called your True Out-of-Pocket (TrOOP) costs. It includes: Your deductible payments Copayments and coinsurance you pay at the pharmacy Amounts paid on your behalf through the Extra Help low-income subsidy program It does not include: Your monthly Part D (or Medicare Advantage) plan premium
Costs for drugs not covered under your plan’s formulary Amounts you pay using a discount card or program (like GoodRx or similar services) instead of running the purchase through your Part D plan — those payments don’t count toward your cap at all The manufacturer’s 10% discount contribution during the initial coverage phase — that portion is covered by the manufacturer, not you, but importantly it still does count toward your $2,100 total, since it reduces your cost the same way a payment would If you use a drug discount program outside your Part D plan for a particular prescription, be aware that you’re trading a possibly lower price at checkout for a purchase that doesn’t count toward reaching your $2,100 cap. For anyone on multiple ongoing medications, running everything through your actual Part D plan is usually the better long-term strategy.

The Medicare Prescription Payment Plan (M3P): Spreading Costs Out

Even with the new $2,100 cap, some people front-load a large share of their annual drug costs in January or
February — for example, filling an expensive specialty medication right at the start of the year. The Medicare
Prescription Payment Plan, sometimes referred to as M3P, exists specifically for this situation.
Here’s how it works: instead of paying your full cost-sharing amount at the pharmacy counter, you opt into M3P
through your Part D or Medicare Advantage plan, and your plan pays the pharmacy directly. You then receive a
monthly bill instead, spreading your out-of-pocket costs across the remaining months of the plan year in interestfree, capped installments.

A couple of examples of how this plays out in 2026: If your very first prescription of the year costs $2,100 or more, you’d normally owe the full $2,100 out-ofpocket cap in January alone. With M3P, that $2,100 is instead divided across the 12 months of the year — roughly $175 a month. If you fill a smaller prescription in January, your first month’s bill is calculated by taking the $2,100 annual cap and dividing it by the remaining months in the year, then adjusting each subsequent month based on your actual costs. Importantly, M3P doesn’t reduce what you owe — your total for the year is still capped at $2,100 either way. It only changes when you pay it. That said, for someone on a fixed income who doesn’t want a $2,000+ pharmacy bill in a single month, this can make a real difference in cash flow. Every Part D plan is required to offer it, participation is free and voluntary, and you can opt in through your plan at any point during the year — not just during Annual Enrollment.

Who Benefits Most From Understanding This

Anyone on an expensive specialty or brand-name medication. The $2,100 cap means your worst-case annual drug spending is now predictable and bounded, in a way it never was before 2025. Anyone who gets hit with a large drug cost early in the year — a new diagnosis, a new specialistprescribed medication, or a recurring treatment. M3P exists precisely for this situation. Anyone comparing Medicare Advantage (MAPD) plans against standalone Part D plans. The $2,100 cap and three-stage structure apply the same way regardless of which type of plan carries your drug coverage, so drug cost shouldn’t be assumed to favor one path over the other without checking the specific formulary and tier costs.

Frequently Asked Questions

What is the Medicare Part D out-of-pocket cap for 2026?
For 2026, the annual out-of-pocket cap for covered Part D prescription drug costs is $2,100. Once your True Outof-Pocket (TrOOP) spending reaches that amount, you pay $0 for the rest of the calendar year on covered drugs.
No. The coverage gap, commonly known as the donut hole, was permanently eliminated starting in 2025 under the Inflation Reduction Act. Part D now has three stages instead of four: deductible, initial coverage, and catastrophic coverage
No Part D plan can charge a deductible higher than $615 in 2026. Plans may set it lower or waive it for certain drug tiers.
No. The cap applies only to your deductible, copayments, and coinsurance for covered drugs. Your monthly premium is separate and doesn’t count toward it.
No. Payments made through discount programs outside your Part D plan don’t count toward your $2,100 out-ofpocket cap, since the purchase isn’t processed through your plan’s benefit. If you’re managing multiple ongoing prescriptions, it’s usually worth running them through your actual Part D coverage so that spending applies toward your annual cap.
It’s a free, optional program that lets you spread your Part D out-of-pocket drug costs into monthly installments across the plan year instead of paying the full amount at the pharmacy. It doesn’t lower your total costs — your annual cap is still $2,100 either way — but it can make a large early-year drug expense much easier to manage month to month.
Any time during the plan year, not just during Annual Enrollment. Your plan is required to process your election within 24 hours of your request. Enrolling earlier in the year gives you more months to spread your costs across, so if you know you’re facing a large drug expense, it’s worth opting in as soon as possible rather than waiting.
Yes. The Part D redesign, including the three-stage structure and the $2,100 annual cap, applies whether your drug coverage comes through a standalone Part D plan or a Medicare Advantage plan that includes drug coverage.
No. Only costs for drugs included on your plan’s formulary count toward the cap. If you’re prescribed something outside your plan’s formulary, those costs are on you and don’t move you any closer to catastrophic coverage.

I’m Here to Help

Between the deductible, the initial coverage coinsurance, the new $2,100 cap, and now the option to smooth costs through the Medicare Prescription Payment Plan, Part D looks very different than it did just a few years ago — and a lot of people haven’t caught up on exactly how it works now. If you’d like help understanding what your specific medications will actually cost you this year, or comparing Part D coverage options during Annual Enrollment, give me a call. That conversation is always free

Mike Miligi — Owner, Michael M Insurance Services

For over 10 years, Mike has helped seniors and other Medicare-eligible individuals understand their options, including Medicare Advantage Plans (Part C), Medicare Supplement Plans (Medigap), Prescription Drug Plans (Part D), and dental and vision programs. Mike is licensed in seven states and certified with 11 insurance carriers. As an independent Medicare health insurance broker, he works for the client, not the insurance carriers, providing accurate, unbiased options. Mike recertifies with CMS annually and completes continuing education to stay current on industry standards.

(631) 774-3786 | mmilinsurance@gmail.com | www.mymedicaremike.com


RELATES TOPICS-
Guide to Your Medicare Card | What It Covers – Michael M
https://mymedicaremike.com/medicare-supplement/
Medicare Advantages Plans – Michael M Insurance Services
Medicare Part D – My medicare mike
INFO SOURCES-
Medicare Part D Improvements | CMS
https://medicareadvocacy.org/medicare-info/medicare-part-d/
Medicare TrOOP: What to know
https://www.medicare.gov/health-drug-plans/part-d/basics/costs

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Selecting the best Medicare coverage depends on factors like your healthcare needs, budget, and preferred providers. You can choose between:
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  • Medicare Advantage (Part C): Offers bundled coverage with
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Key Medicare Enrollment Periods

It is crucial to enroll in Medicare at the right time to avoid penalties and ensure continuous coverage:
  • Initial Enrollment Period (IEP): A seven-month window starting
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  • General Enrollment Period (GEP): From January 1 to March 31
    each year for those who missed their IEP.
  • Annual Election Period (AEP): From October 15 to December 7,
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  • Open Enrollment Period(OEP): From January 1 to March 31 for
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Finding Help with Medicare

Understanding Medicare can be complex, but you don’t have to do it alone. Licensed Insurance Brokers, Medicare.gov, and state health assistance programs can provide guidance tailored to your specific needs.
By taking the time to explore your Medicare options, you can make informed decisions that ensure you receive the healthcare coverage that best suits your lifestyle and budget.
Do I have to sign up for Medicare?
It depends upon your current coverage. If you are employed and your employer has over 20 employees then you can delay signing up for Medicare and avoid penalties.
No, You will have to enroll in a stand alone Part D plan or a Medicare Advantage Plan(Part C) to get coverage.
There are no networks with Medicare and most doctors and hospitals accept it. However, Medicare does not cover 100% of services so a Medicare Supplement or Medicare Advantage plans is advisable.

Mike Miligi- Owner

For over 10 years, Mike has been assisting Seniors and other Medicare-eligible individuals in understanding the ins and outs of Medicare and Medicare Health Insurance options, including Medicare Advantage Plans(Part C), Medicare Supplement Plans(Medigap), Prescription Drug Plans(PartD), and Dental and Vision programs.
Mike is Licensed in seven States and Certified with 11 Insurance Carriers. He has helped thousands of individuals decide on the best course of action for their particular Health Insurance needs. Because Mike is an Independent Medicare Health Insurance Broker, he works for the client, not the Insurance Carriers, and is able to provide his clients with accurate and unbiased Health Insurance options.
Mike recertifies with CMS(The Centers for Medicare and Medicaid Services) annually, regularly completes Continuing Education Courses required by individual State Insurance Departments, and keeps abreast of industry trends and standards to offer his clients the most up-to-date information.
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