Written By

Greg Wohl

Licensed Medicare Specialist

The Inflation Reduction Act of 2022 made sweeping changes to Medicare Part D, including an annual out-of-pocket cap on covered prescription drug costs that first took effect in 2025 at $2,000 and increased to $2,100 in 2026.

Before this cap existed, there was no limit on what Medicare beneficiaries could pay out of pocket for drugs in a single year. Beneficiaries with expensive specialty medications could spend $5,000, $10,000, or more annually. The cap changes that fundamentally.

This guide explains exactly how the 2026 cap works, what counts toward it, how the Medicare Prescription Payment Plan helps spread costs, and what the changes mean for your plan selection.

Key Takeaways

The $2,100 cap is in effect for 2026: In 2026, Medicare Part D has a $2,100 annual out-of-pocket cap. Once you reach $2,100 in qualifying out-of-pocket costs, you pay $0 for covered drugs for the rest of the year.
The donut hole is eliminated: The coverage gap (donut hole) that previously required beneficiaries to pay a higher share of drug costs no longer exists. The Part D benefit now has three phases: deductible, initial coverage, and catastrophic coverage (at $2,100 in 2026).
Not all costs count toward the cap: Only your out-of-pocket costs for covered drugs count toward the $2,100 cap. Premiums do not count. Costs for drugs not on your plan's formulary do not count. Extra Help subsidies do not count toward your cap.
The Medicare Prescription Payment Plan lets you spread costs: A new optional program lets you spread your out-of-pocket drug costs across monthly installments throughout the year rather than paying large amounts at once. This is especially helpful for beneficiaries who fill expensive prescriptions early in the year.
Extra Help beneficiaries have even lower costs: Beneficiaries who qualify for Extra Help (the Low Income Subsidy) have copays capped at $4.50 for generics and $11.20 for brand-name drugs in 2026. These beneficiaries are unlikely to reach the $2,100 cap.
Plan comparison is more important than ever: Because the cap creates a new financial ceiling, the most important factors in plan selection are now the premium, the deductible, and the formulary. Plans that cover your specific drugs at lower cost-sharing tiers will save you the most money.

How the $2,100 Cap Works: The Three Phases of Part D in 2026

Medicare Part D now has three benefit phases instead of four. The coverage gap (donut hole) has been eliminated.

Phase 1: Deductible In 2026, the standard Part D deductible is $590. During this phase, you pay 100% of covered drug costs until you meet your deductible. Not all plans charge the full deductible; some plans have reduced deductibles for certain drug tiers.

Phase 2: Initial Coverage After meeting your deductible, you pay your plan's standard cost-sharing (copays or coinsurance) for covered drugs. Your plan pays the rest. This phase continues until your out-of-pocket costs reach $2,100.

Phase 3: Catastrophic Coverage Once your out-of-pocket costs reach $2,100, you pay $0 for covered drugs for the rest of the calendar year. There is no coinsurance or copay in the catastrophic phase.

Phase	Trigger	What You Pay
Deductible	Start of year	100% up to $590
Initial Coverage	After deductible	Plan copays/coinsurance
Catastrophic	After $2,100 OOP	$0

What Counts Toward the $2,100 Cap?

Understanding what counts toward the cap is critical for planning your drug costs accurately.

What counts:

Your deductible payments for covered drugs
Your copays and coinsurance for covered drugs during the initial coverage phase
Manufacturer discounts on brand-name drugs (a key change from prior years)

What does NOT count:

Your monthly Part D premium
Costs for drugs not on your plan's formulary
Costs for drugs purchased outside the U.S.
Extra Help (Low Income Subsidy) payments made on your behalf
Costs for drugs purchased at non-network pharmacies without coverage

The inclusion of manufacturer discounts in the cap calculation is significant. For beneficiaries taking expensive brand-name specialty drugs, these discounts can be substantial and can help you reach the $2,100 cap faster than your actual cash outlay might suggest.

The Medicare Prescription Payment Plan: Spreading Costs Across the Year

A new optional program called the Medicare Prescription Payment Plan (M3P) allows you to spread your out-of-pocket Part D costs across monthly installments throughout the year.

How it works: Instead of paying your full cost-sharing at the pharmacy, you pay a monthly installment to your plan. The plan pays the pharmacy the full amount, and you repay the plan in equal monthly installments through December.

Who benefits most: Beneficiaries who fill expensive prescriptions early in the year (January, February, March) face large upfront costs before they reach the $2,100 cap. The M3P smooths these costs into smaller monthly payments.

Example: If you fill a specialty drug in January that costs $800 out of pocket, you would normally pay $800 at the pharmacy. Under M3P, you might pay approximately $67 per month for the rest of the year instead.

How to enroll: Contact your Part D plan directly to enroll in M3P. You must enroll by the 7th of the month for the program to take effect that month. You can disenroll at any time.

Important note: M3P is a payment smoothing tool, not a discount program. Your total out-of-pocket costs for the year are the same. You are simply spreading when you pay them.

How the Cap Affects Plan Selection in 2026

The $2,100 cap changes the math of Part D plan selection in important ways.

The cap creates a ceiling on your risk: Before the cap was introduced, a beneficiary with a $10,000 specialty drug could pay thousands out of pocket annually. Now, the maximum exposure is $2,100. This makes the premium-to-coverage trade-off easier to evaluate.

Formulary coverage matters more than ever: Only costs for covered drugs count toward the cap. If your plan does not cover a drug you need, you pay full price and those costs do not count toward the cap. Verifying that your specific drugs are on the formulary at a favorable tier is the most important step in plan selection.

Tier placement affects how quickly you reach the cap: A drug placed on Tier 5 (specialty) with 33% coinsurance will push you toward the cap faster than the same drug on Tier 3 with a $47 copay. Lower tier placement means lower cost-sharing and a slower path to the cap.

For high-cost drug users, the cap is the most important feature: If you take specialty medications that cost $500+ per month, you will likely reach the $2,100 cap by mid-year. In that case, the annual premium becomes a secondary concern compared to formulary coverage and tier placement.

For help comparing Part D plans for your specific medications, schedule a free consultation with our licensed specialists.

Extra Help and the $2,100 Cap

Beneficiaries who qualify for Extra Help (the Low Income Subsidy) have their own cost-sharing structure that is separate from the standard $2,100 cap framework.

Extra Help copays in 2026:

Generics and preferred multisource drugs: $4.50 per fill
All other drugs: $11.20 per fill
Full dual-eligible beneficiaries: $0 to $4.50 per fill depending on income level

Because Extra Help copays are so low, most beneficiaries with Extra Help will never reach the $2,100 cap. The cap provides the most benefit to beneficiaries without Extra Help who take expensive medications.

If you are not currently enrolled in Extra Help but have limited income and resources, you may qualify. See our guide on dual eligibility and Medicare Savings Programs for income thresholds and how to apply.

For more on Part D enrollment and reinstatement options, see our guide on reinstating a Part D plan.

The Bottom Line on the Part D Cap in 2026

The Part D out-of-pocket cap is the most significant improvement to Medicare drug coverage in decades. Here is what to remember for 2026:

The cap is $2,100 in out-of-pocket costs for covered drugs per calendar year, after which you pay $0
The donut hole is gone — the benefit now moves directly from initial coverage to catastrophic at $2,100
Manufacturer discounts count toward the cap, helping beneficiaries on expensive brand-name drugs reach it faster
Premiums do not count toward the cap, and neither do costs for drugs not on your formulary
The Medicare Prescription Payment Plan lets you spread costs monthly if you face large upfront drug expenses
Formulary verification is the most important step in plan selection under the new cap structure

Our licensed independent specialists can help you compare Part D plans for your specific medications and find the best coverage for 2026. Schedule a free consultation to get started.