Medicare is delivering significant relief to millions facing high prescription drug costs through changes from the Inflation Reduction Act of 2022. Medicare Part D now includes an annual out-of-pocket cap for covered prescription drugs—the most significant improvement to the program since it launched in 2006. The cap started at $2,000 in 2025 and is indexed for inflation: it is $2,100 in 2026 and rises to $2,400 in 2027.
The cap replaces the previous structure, in which enrollees had no limit on out-of-pocket spending. Previously, beneficiaries had to spend approximately $7,400 in actual out-of-pocket costs to reach the catastrophic coverage phase, and then still paid 5% of drug costs with no upper limit. The new structure eliminates the coverage gap ("donut hole"). It simplifies the benefit into three clear phases: deductible (up to $615 in 2026, rising to $700 in 2027), initial coverage, and catastrophic coverage with $0 cost-sharing after the cap.
These changes help those with high-cost medications for conditions like cancer, rheumatoid arthritis, diabetes, heart disease, or other chronic illnesses—often saving thousands of dollars annually.
How the Out-of-Pocket Cap Works
Applies to all covered Part D drugs (standalone plans or Medicare Advantage with drug coverage)
Includes deductibles, copays, and coinsurance paid by the beneficiary, as well as certain amounts paid on your behalf (like through Extra Help)
$0 cost-sharing after the cap: Once your out-of-pocket spending reaches the cap ($2,100 in 2026; $2,400 in 2027), you pay nothing for covered drugs for the rest of the year
Automatic benefit: You don't need to sign up or do anything—the cap applies automatically to everyone with Part D coverage
Does not include: Monthly Part D premiums, drugs not covered by your plan, or drugs covered under Medicare Part B (such as injectables and infused drugs)
Medicare Prescription Payment Plan
Beneficiaries can opt into the Medicare Prescription Payment Plan to spread out-of-pocket drug costs throughout the year. This helps manage cash flow by converting lump-sum pharmacy payments into predictable monthly bills.
Key features:
Interest-free: No interest charges or fees to participate
Pay $0 at the pharmacy: Your plan pays the pharmacy, then bills you monthly
Same total cost: This payment option doesn't reduce your drug costs—it just spreads them out over the remaining months in the year
Best if enrolled early: Enrolling earlier in the year (before September) gives you more months to spread out payments
Automatic renewal: If you opt in, you'll automatically be enrolled again the following year (with the same plan)
Who benefits most: Those with high drug costs early in the year, those who have difficulty paying costs all at once, and those who don't qualify for Extra Help or other assistance programs.
How to enroll: Contact your Part D plan directly—enrollment is available at any time during the calendar year.
Additional Inflation Reduction Act Benefits
The out-of-pocket cap is part of a broader package of prescription drug reforms under the Inflation Reduction Act:
$35 monthly insulin cap: All Part D plans must charge no more than $35 per month for covered insulin products, with no deductible applied to insulin. This applies to approximately 3.3 million Medicare beneficiaries who use insulin and are enrolled in Part D plans.
$0 vaccines: All vaccines recommended by the CDC's Advisory Committee on Immunization Practices (ACIP) are covered at no cost under Part D, including shingles, RSV, Tdap, and more.
Inflation penalties: Drug manufacturers must pay Medicare penalties if they raise prices faster than inflation.
Medicare-Negotiated Drug Prices (Starting 2026)
For the first time, the Inflation Reduction Act gives Medicare the power to negotiate directly with drug manufacturers for lower prices on some of the most expensive brand-name drugs. The first negotiated prices took effect January 1, 2026.
The first 10 drugs selected for negotiation (effective 2026):
Eliquis (blood clots) – used by nearly 4 million Medicare beneficiaries
Jardiance (diabetes, heart failure)
Xarelto (blood clots)
Januvia (diabetes) – 79% discount from 2023 list price
Farxiga (diabetes, heart failure, chronic kidney disease)
Entresto (heart failure)
Enbrel (rheumatoid arthritis, autoimmune conditions)
Imbruvica (blood cancers)
Stelara (psoriasis, Crohn's disease)
NovoLog/Fiasp (insulin)
Projected savings from negotiated prices:
$1.5 billion in collective out-of-pocket savings for Part D enrollees in 2026
$6 billion in annual savings for the Medicare program
~50% average reduction in out-of-pocket costs for these drugs (according to AARP analysis)
Discounts range from 38% to 79% off 2023 list prices
Nearly 9 million Medicare enrollees use these 10 drugs
Future drug negotiations: 15 more drugs (including Ozempic) will have negotiated prices in 2027, up to 15 more in 2028, and up to 20 additional drugs each year thereafter. The number of drugs with negotiated prices will accumulate over time.
Who Benefits from the Out-of-Pocket Cap?
National Impact (First-Year Projections):
About 11.3 million Part D enrollees were projected to reach the cap in its first year
18.7 million enrollees (36% of Part D) are projected to save money under the IRA changes
~$7.4 billion in total annual savings for Part D enrollees
Average savings of ~$635 per enrollee for those who reach the cap
Non-LIS enrollees save ~$1,100 on average (those without low-income subsidies)
94% of people who reach the cap will see lower total out-of-pocket costs (including premiums), according to January 2025 AARP research
62% will save more than $1,000; 12% will save more than $5,000
Average total savings of $2,474 (a 48% reduction in total out-of-pocket costs) for those who reach the cap
Historical Context:
In 2021, about 1.5 million Part D enrollees (without low-income subsidies) spent $2,000 or more out-of-pocket—if the cap had been in place, they would have saved significantly. Over 10 years (2012–2021), 5 million enrollees exceeded $2,000 at least once; since the Part D program began in 2007, nearly 7 million did.
North Carolina Impact:
In 2021 alone, approximately 57,000 North Carolina Part D enrollees faced out-of-pocket costs of $2,000 or more
Over five years (2017–2021), this number rose to approximately 121,000 NC residents
Over ten years (2012–2021), around 182,000 North Carolinians exceeded $2,000 in at least one year
Since Part D began, approximately 241,000 North Carolinians will have benefited from the new cap
Impact on Part D Premiums
The IRA includes premium stabilization measures to limit year-over-year increases through 2029. In addition, CMS implemented a voluntary Part D Premium Stabilization Demonstration to ensure beneficiaries have stable, affordable choices during the transition.
2026 Premiums:
Average standalone Part D plan premium: $34.50/month
Average Part D premium for Medicare Advantage plans with drug coverage: $11.50/month
National base beneficiary premium: $38.99
"Nearly all" PDP enrollees are in plans opting into the premium stabilization demonstration for 2026
Important: Plans may adjust formularies, tier placements, or cost-sharing structures from year to year. Always review your Annual Notice of Change (ANOC) each fall and compare plans during Open Enrollment (October 15 – December 7, 2026, for 2027 coverage) to ensure your medications are covered at the best price.
Key Dates and Changes at a Glance
2025:
Annual out-of-pocket cap begins
Coverage gap ("donut hole") eliminated
Medicare Prescription Payment Plan available
$35/month insulin cap continues
$0 recommended vaccines continue
2026:
Out-of-pocket cap increases to $2,100
Maximum deductible: $615
First 10 Medicare-negotiated drug prices take effect (January 1)
Estimated $1.5 billion in savings from negotiated prices
2027 and Beyond:
Out-of-pocket cap rises to $2,400
Maximum deductible: $700
15 additional drug prices negotiated (including Ozempic) take effect
An estimated $8.5-$12 billion in additional savings from 2027 negotiated drugs
Up to 20 additional drugs are negotiated each year thereafter
Got Questions?
Many North Carolina residents are unaware of these changes and their potential savings. Our local Medicare agents at Health Plans of NC are here to help you:
Understand how the out-of-pocket cap affects your specific medications
Review your current Part D plan for the best coverage and pricing
Compare plans during Open Enrollment to find the best fit
Determine if you qualify for Extra Help or other assistance programs
Explain the Medicare Prescription Payment Plan and whether it's right for you
Identify if you take any of the Medicare-negotiated drugs and what savings to expect
