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.
Is the Part D “donut hole” still a thing?
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
What is the maximum Part D deductible for 2026?
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.
Does my monthly Part D premium count toward the $2,100 cap?
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.
If I use a coupon or discount card instead of my Part D plan, does that count toward my cap?
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.
What is the Medicare Prescription Payment Plan (M3P)?
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.
When can I opt into the Medicare Prescription Payment Plan?
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.
Does the $2,100 cap apply the same way to Medicare Advantage plans with drug coverage (MAPD)?
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.
Does the $2,100 cap include drugs my plan doesn’t cover?
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.
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RELATES TOPICS-
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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
