Blog / Part D

What is the annual out of pocket cap on Medicare drug costs?

A hard limit on what you pay for covered prescriptions each year. What counts toward it, what does not, and why it changes plan selection.

Updated August 17, 2026 · 2 min read

Part D now has a hard annual limit on what you pay out of pocket for covered prescriptions. Once you reach it, your covered drugs cost you nothing for the rest of the calendar year.

This replaced the old coverage gap and it is the most significant change to Medicare drug coverage in years.

Why it matters

Before, someone on an expensive specialty medication faced open ended costs. There was relief at the catastrophic stage but you still paid a percentage, and on a drug costing thousands a month that percentage was substantial.

Now there is a ceiling. You know your worst case for prescriptions before the year begins, which is what insurance is supposed to provide.

What counts toward the cap

• Your deductible payments
• Your copays and coinsurance on covered drugs
• Amounts paid on your behalf by Extra Help
• Certain manufacturer discounts applied to your covered drugs

What does not count

• Your monthly plan premium
• Drugs not on your plan's formulary that you pay for entirely yourself
• Drugs bought outside the plan, including through discount cards
• Over the counter medications

It applies to Advantage plans too

If your drug coverage comes through a Medicare Advantage plan, the same cap applies to the drug side of that plan. It is separate from the plan's medical out of pocket maximum.

So an Advantage enrollee has two caps: one for medical services, one for prescriptions. See drug coverage inside Advantage plans.

Spreading the payments

There is an option to spread your out of pocket drug costs into level monthly payments across the plan year rather than paying them as they occur.

This is useful if you would otherwise face a large bill in January, which is common when an expensive drug hits a deductible and early coinsurance at once. It does not reduce the total, it changes the timing.

Ask your plan how to opt in. It is not automatic and most people are never told it exists.

How this should change your plan choice

If you take an expensive medication, the cap means the plan's premium and deductible matter more relative to coinsurance than they used to, because your annual exposure is now bounded either way.

The comparison to run is still the same: total estimated annual cost for your actual drugs at your actual pharmacy. The cap simply means the worst case is now knowable. See how to compare plans.

The exact cap figure is set each year. Check Medicare.gov for the current number or call and we will look it up with you.