Medicare Part D changes (again) in 2026: What health insurance agents should know

The 2022 Inflation Reduction Act kickstarted a long series of changes to Medicare Part D. Implementation of that redesign continues in contract year 2026, with a few more relatively minor changes that impact beneficiaries and carriers – and therefore, you.

What portions of the Part D Benefit will change in 2026?

• The out-of-pocket threshold will increase to $2,100. The $2,000 cap established last year will adjust annually based on Part D expenses from the previous year.

• With negotiated prices for ten drugs going into effect on January 1, all stakeholders -- Part D enrollees, Part D sponsors, manufacturers, and CMS -- will have revised payment responsibilities.
• And, because negotiated prices are going into effect, CMS is launching a new selected drug subsidy program.

How will the definition of creditable coverage change in 2026?

To avoid Late Enrollment Penalties, those who are Medicare-eligible must not have a gap in creditable coverage longer than 63 days. In (sort-of) layman’s terms, if someone is not enrolled in a Medicare Advantage Plan with Prescription Drug coverage or a stand-alone Prescription Drug Plan, the drug coverage they do receive has to be at least as good as what the standard Medicare benefit would cover.

But, with Part D benefits getting richer, the threshold for determining whether drug coverage is creditable is changing to match.

Employers that do not use the Retiree Drug Subsidy (RDS) must currently determine whether the offered coverage is creditable through actuarial testing or a simplified method offered by CMS. However, that simplified method will no longer stack up.

For CY 2026 only, CMS will allow employers to use either the current or revised simplified determination methods. Starting in 2027, only the revised method will be permitted. If using the current determination method, the plan must cover at least 60% of all participants’ prescription drug expenses. The revised simplified methodology requires plans to cover at least 72% of all plan participants’ drug expenses.

What is the selected drug subsidy?

For drugs whose prices have been negotiated by Medicare, Part D sponsors will receive a government subsidy of 10% of the negotiated price. This subsidy applies only when the beneficiary hasn’t met the yearly out-of-pocket cap, and is designed to reduce a plan’s costs for negotiated drugs.

What are the three Part D coverage phases, and who pays for the drug in each phase?

The three coverage phases remain unchanged from last year, but negotiated pricing does alter financial responsibilities. While beneficiaries will only immediately feel the increases in the Part D deductible and out-of-pocket caps, changing carrier responsibilities may affect overall benefit design.

In the annual deductible phase:

• The enrollee pays 100% of their covered prescription costs until they meet the CY 2026 deductible of $615.
• For plans not using the standard benefit design, beneficiaries may move directly to the initial coverage phase

In the initial coverage phase:

• The enrollee pays up to 25% coinsurance for covered Part D drugs.
• The carrier or Part D sponsor then pays 65% of the cost of negotiated drugs, and 75% of the cost of all other covered Part D drugs
• The manufacturer typically covers 10% of the cost of the drugs,
• CMS kicks in 10% for the aforementioned subsidy program.

This arrangement continues until the beneficiary hits the annual cap of $2,100.

In the catastrophic phase:

• The beneficiary has no cost-sharing responsibility for covered drugs. C
• Carriers pay 60% of the costs of all covered drugs
• Manufacturers pick up 20% of the cost.
• CMS issues a reinsurance subsidy of 20% of the costs for some drugs, and a 40% subsidy for others

What changes are coming for health insurance agents in 2026?

Beneficiaries are used to the changes that went into effect in 2025, so having three coverage phases is nothing new.

Medicare enrollees will face higher deductibles and out-of-pocket thresholds. These increases and carriers’ greater responsibility for drug costs will likely drive benefit design changes this fall.

Agents serving employer groups should pay special attention here. The higher threshold may mean that some groups’ coverage will no longer be creditable in 2026 (at least without significant plan adjustments), which could expose Medicare-eligible employees to late enrollment penalties.

As we learn more, we’ll continue to share information to help you navigate this upcoming enrollment season.