Part D After the Inflation Reduction Act

54.8 million Medicare beneficiaries were enrolled in Part D plans in 2025, 58 percent through Medicare Advantage drug plans and 42 percent through stand-alone plans. The Inflation Reduction Act rebuilt the benefit those enrollees receive, and the changes matter well beyond pharmacy.

The 2026 standard benefit

The structure now has three phases and a hard ceiling:

1. Deductible: $615.
2. Initial coverage: the enrollee pays 25 percent coinsurance.
3. Catastrophic coverage: once out-of-pocket spending reaches $2,100, the enrollee pays nothing further for covered drugs that year.

Before the redesign there was no ceiling. Enrollees who reached catastrophic coverage continued to owe 5 percent coinsurance indefinitely, which for a high-cost specialty drug could mean thousands of dollars a year with no end. Eliminating that 5 percent and capping total exposure is the change beneficiaries actually feel.

Who now bears the cost

The redesign did not simply move spending onto the government. It moved risk onto plans and manufacturers. Medicare’s reinsurance payments to plans now “subsidize 20% of brand-name drug spending and 40% of generic drug spending, down from 80% in previous years.”

That is a large reallocation. A plan that previously ceded 80 percent of catastrophic spending to Medicare now retains most of it, which gives Part D plans a far stronger interest in formulary management, utilization, and negotiated rebates than they had before. Manufacturers also pay rebates when drug prices rise faster than inflation.

Worth remembering: this is a textbook case of the risk-shifting logic the finance course described, applied to a public benefit. Capping what the beneficiary pays does not make the cost disappear, it decides who else absorbs it. Here the answer was plans and manufacturers rather than taxpayers alone, and the predictable consequences follow: tighter formularies, more prior authorization on high-cost drugs, and pressure on stand-alone plan premiums. Whether that trade is worth it depends on how you weigh beneficiary protection against access friction, which is a judgment rather than a calculation.

Low-income subsidy

Separately, “as of May 2025, 13.9 million Part D enrollees receive premium and cost-sharing assistance through the LIS program,” which caps their copayments at nominal amounts and allows enrollment in premium-free benchmark plans. For a quarter of Part D enrollees, the standard benefit parameters above are not the operative ones.

Key takeaways

• 54.8 million people were enrolled in Part D in 2025, most through Medicare Advantage drug plans.
• The 2026 standard benefit is a $615 deductible, 25 percent coinsurance, and a hard $2,100 out-of-pocket cap.
• Medicare reinsurance in the catastrophic phase fell from 80 percent to 20 percent for brands and 40 percent for generics.
• 13.9 million enrollees receive low-income subsidy assistance and face different cost sharing entirely.

Sources

• KFF, A Current Snapshot of the Medicare Part D Prescription Drug Benefit (opens in a new tab)