The Inflation Reduction Act (IRA), enacted in August 2022, is phasing in the most significant changes to Medicare Part D since the program began in 2006. In 2025, the IRA eliminated the coverage gap (donut hole), capped out-of-pocket drug spending at $2,000, and introduced the Medicare Prescription Payment Plan. In 2026, the cap rises to $2,100, the Selected Drug Subsidy program takes effect, and the first round of IRA-negotiated drug prices becomes binding.
This guide is for commercial teams, access professionals, and payer strategists who need to understand the new Part D benefit structure, what changed between 2025 and 2026, and what to monitor next.
The new Part D benefit structure
Starting in 2025 and continuing in 2026, the Part D defined standard benefit has three phases instead of the historical four:
Phase 1: Deductible
- The enrollee pays 100% of drug costs until the plan deductible is met.
- The maximum Part D deductible for 2026 is $615 (up from $590 in 2025).
- Many plans offer $0 deductibles on preferred generics or use enhanced alternative benefit designs that waive or reduce the deductible.
Phase 2: Initial coverage
- The enrollee pays 25% coinsurance (or plan-defined copayments) for covered drugs.
- Cost-sharing responsibilities in 2026:
- Enrollee: 25% of drug costs
- Part D plan: 65% of applicable drug costs (75% for non-applicable/generic drugs)
- Drug manufacturer: 10% of applicable drug costs (via the Manufacturer Discount Program)
- CMS: 10% Selected Drug Subsidy for selected drugs during a price applicability period
- This phase continues until the enrollee's cumulative out-of-pocket spending reaches the annual threshold ($2,100 in 2026).
Phase 3: Catastrophic coverage
- The enrollee pays $0 for covered Part D drugs for the remainder of the calendar year.
- Cost-sharing responsibilities in 2026:
- Enrollee: $0
- Part D plan: 60% of drug costs
- Drug manufacturer: 20% of applicable drug costs (via the Manufacturer Discount Program)
- CMS/Medicare: 20% reinsurance for applicable drugs (40% for non-applicable drugs)
What was eliminated
The coverage gap (donut hole) phase was eliminated entirely as of January 1, 2025. Prior to the IRA, enrollees who exceeded the initial coverage limit entered the donut hole, where they paid a higher share of costs until reaching catastrophic coverage. The IRA removed this phase, creating a simpler three-phase structure.
Out-of-pocket cap
The IRA introduced a hard cap on annual out-of-pocket spending for Part D drugs, phasing in as follows:
| Year | OOP Cap |
|---|---|
| 2024 | No cap (5% coinsurance in catastrophic phase eliminated) |
| 2025 | $2,000 |
| 2026 | $2,100 |
The cap is indexed annually based on the percentage increase in average per-capita aggregate Part D drug expenditures. It includes deductibles, copayments, and coinsurance for drugs covered by the enrollee's Part D plan. It does not include Part D plan premiums or costs for drugs not covered by the plan.
What counts toward the cap
- Plan deductibles
- Copayments and coinsurance for formulary drugs
- Costs in both the deductible and initial coverage phases
What does not count
- Monthly Part D plan premiums
- Costs for non-formulary drugs
- Drugs covered under Medicare Part B (injectable/infused drugs administered in clinical settings)
Medicare Prescription Payment Plan
Starting in 2025, Part D enrollees can opt into a program that spreads out-of-pocket costs evenly across monthly payments rather than requiring large upfront payments at the pharmacy. Key points:
- Participation is voluntary and plan-level
- Enrollees pay a fixed monthly amount rather than variable copays at the point of sale
- The plan fronts the drug cost and bills the enrollee monthly
- Particularly beneficial for patients taking high-cost specialty drugs early in the year
- Continues in 2026 with the same structure
Manufacturer Discount Program
The IRA replaced the Coverage Gap Discount Program (CGDP) with the Manufacturer Discount Program (MDP), effective January 1, 2025. Under the MDP:
- Drug manufacturers must provide discounts on applicable drugs in both the initial coverage and catastrophic phases
- In the initial coverage phase: manufacturers pay approximately 10% of applicable drug costs
- In the catastrophic phase: manufacturers pay approximately 20% of applicable drug costs
- The discount is mandatory for manufacturers that participate in Medicare and Medicaid
- "Applicable drugs" are branded drugs that are not selected drugs under the IRA negotiation program
Selected Drug Subsidy program
Effective January 1, 2026, the IRA creates a new Selected Drug Subsidy program:
- Part D sponsors receive a government subsidy equal to 10% of a selected drug's negotiated price
- Applies to drugs for which a maximum fair price (MFP) has been established under the IRA negotiation program
- The subsidy applies while the enrollee is in the initial coverage phase (before reaching the $2,100 OOP threshold)
- The subsidy lowers Part D plan liability on the negotiated price of selected drugs
- Part D sponsors are required to include selected drugs on their formularies during the price applicability period
IRA-negotiated drug prices
The first round of IRA price negotiations established maximum fair prices for 10 high-cost Part D drugs, effective January 1, 2026. The second round covers 15 additional drugs with prices taking effect in 2027. Key implications:
- Negotiated prices can be significantly below current list prices (reported discounts range from 38% to 79%)
- Part D plans must include negotiated drugs on formulary during the price applicability period
- The Selected Drug Subsidy further reduces plan liability for these drugs
- Biosimilar manufacturers may face competitive pressure if the reference product's negotiated price approaches or undercuts biosimilar pricing
Implications for commercial teams
Formulary positioning
The restructuring of Part D cost-sharing changes the financial calculus for Part D plan sponsors. In the catastrophic phase, plans now pay 60% (up from 15% pre-IRA), while Medicare reinsurance drops from 80% to 20%. This makes plans more sensitive to high-cost drugs and creates stronger incentives for:
- Biosimilar and generic preference
- Step therapy and prior authorization for specialty drugs
- Formulary exclusion of high-cost brands when lower-cost alternatives exist
Patient cost burden
The $2,100 OOP cap (2026) is a significant improvement for patients taking expensive specialty drugs, but it is not a complete shield:
- Patients must still reach the cap, which requires substantial upfront spending for high-cost drugs
- The Medicare Prescription Payment Plan can smooth costs but does not reduce total OOP spending
- Drugs covered under Part B (many oncology biologics, infused therapies) are not subject to the Part D cap
Creditable coverage determination
CMS revised the simplified determination methodology for creditable coverage in 2026. Group health plans not applying for the retiree drug subsidy must now demonstrate that their coverage pays at least 72% of each member's prescription drug expenses, reflecting the richer Part D benefit under the IRA. For CY 2026 only, plans may use either the existing or the revised methodology.
What changed in 2026 vs 2025
| Provision | 2025 | 2026 |
|---|---|---|
| OOP cap | $2,000 | $2,100 |
| Maximum deductible | $590 | $615 |
| Selected Drug Subsidy | Not yet in effect | Active for first 10 negotiated drugs |
| IRA-negotiated prices | Not yet in effect | First 10 drugs at MFP |
| Manufacturer Discount Program | Active | Active (expanded to include selected drug interactions) |
| Creditable coverage methodology | Existing simplified method | Revised method (72% threshold) or existing method allowed |
What to monitor next
- Second and third negotiation cycles: IRA-negotiated prices for 15 additional drugs take effect in 2027, with another round following. Monitor which drugs are selected and the magnitude of price reductions.
- Biosimilar impact of negotiated prices: If a reference product's MFP is lower than a biosimilar's price, it could disincentivize biosimilar uptake. Track whether CMS or Part D plans implement policies to preserve biosimilar incentives.
- Part D premium trends: The IRA includes a premium stabilization provision limiting annual premium increases to 6% through 2029. Monitor whether actual premium growth stays within this cap and how plans manage benefit design.
- OOP cap indexing: The cap is indexed to drug cost growth. If drug costs continue to rise rapidly, the cap could increase significantly in future years, reducing the protective value of the reform.
- Part B drug cost reforms: The IRA's inflation rebate provisions also apply to Part B drugs. Monitor CMS enforcement and any legislative proposals to extend OOP caps to Part B.
- Prescription Payment Plan uptake: Track enrollment in the monthly payment option and whether it meaningfully improves medication adherence for high-cost specialty drugs.
Sources
- CMS — Final CY 2026 Part D Redesign Program Instructions, April 2025. https://www.cms.gov/newsroom/fact-sheets/final-cy-2026-part-d-redesign-program-instructions
- KFF — A Current Snapshot of the Medicare Part D Prescription Drug Benefit. https://www.kff.org/medicare/a-current-snapshot-of-the-medicare-part-d-prescription-drug-benefit
- PAN Foundation — Understanding the Medicare Part D Cap. https://www.panfoundation.org/understanding-the-medicare-part-d-cap
- Medicare Resources — How the Inflation Reduction Act Has Improved Medicare Prescription Drug Coverage. https://www.medicareresources.org/blog/how-the-inflation-reduction-act-has-improved-medicare-part-d-prescription-drug-coverage
- NCOA — Who Pays What for Medicare Part D in 2026. https://www.ncoa.org/article/who-pays-what-for-medicare-part-d-in-2026-a-guide
- Federal Register — Medicare Program; Contract Year 2027 and Certain Contract Year 2026 Policy and Technical Changes, April 6, 2026. https://www.federalregister.gov/documents/2026/04/06/2026-06600
- Medicare.gov — How Much Does Medicare Drug Coverage Cost? https://www.medicare.gov/health-drug-plans/part-d/basics/costs
- Q1Medicare — 2026 Medicare Part D Program Compared to Prior Years. https://q1medicare.com/PartD-The-2026-Medicare-Part-D-Outlook.php
