Medicare Part D
Part D's 2027 Out-of-Pocket Cap: San Jose Guide
SAN JOSE, Calif. — On Jan. 1, 2027, the federal limit on what people with Medicare drug coverage can be asked to pay at the pharmacy counter in a single year rises again. The Part D out-of-pocket cap is $2,100 in 2026 and $2,400 in 2027. For people who take expensive medications, it remains one of the biggest shifts Medicare has seen in years — and it lands right as the Annual Enrollment Period (Oct. 15 – Dec. 7) puts drug coverage decisions front and center.
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Key takeaways
- The Part D yearly out-of-pocket cap for covered drugs is $2,100 in 2026 and $2,400 in 2027. Once you hit it, you pay $0 for covered drugs for the rest of that calendar year.
- The old "donut hole" coverage gap phase was eliminated in 2025, so Part D now has just three phases: deductible, initial coverage, and catastrophic.
- The optional, free Medicare Prescription Payment Plan lets you spread your drug costs into monthly bills from your plan instead of paying it all at the pharmacy, though your total cost stays the same.
- If your income is above $109,000 (single) or $218,000 (joint) based on your latest tax return, you'll pay an added IRMAA on your Part D premium in 2026, but this doesn't change what counts toward the $2,100 cap.
Here's a plain-English guide to what's changing, what stayed the same, and how to think through your choices this season.
What the Part D cap actually means
Under Medicare Part D program rules, once your out-of-pocket spending on covered prescription drugs reaches the annual cap — $2,100 in 2026 and $2,400 in 2027 — you pay nothing more for the rest of the calendar year on those covered drugs. The cap resets each January.
A few important details:
- The cap applies to what you spend out of pocket on covered Part D drugs — deductibles and copays or coinsurance count toward it.
- Monthly premiums do not count toward the $2,100 in 2026 ($2,400 in 2027).
- Drugs your plan doesn't cover generally don't count either.
- The maximum Part D deductible a plan can charge is $615 in 2026 and $700 in 2027. Plans can charge less; they can't charge more.
For someone taking a high-cost brand-name drug, hitting the annual cap could happen in the first month or two of the year. After that, covered prescriptions cost nothing for the rest of the year.
The "donut hole" is gone
If you've been on Medicare for a while, you may remember the coverage gap — the "donut hole" — where costs jumped in the middle of the year after a certain spending threshold. That phase was eliminated in 2025.
Part D now has three phases instead of four:
1. Deductible phase (if your plan has one, up to $700 in 2027). 2. Initial coverage phase, where you pay a copay or coinsurance. 3. Catastrophic phase, which kicks in when you hit the annual out-of-pocket cap — $2,400 in 2027 — and you pay nothing more for covered drugs that year.
No more middle-of-the-year price shock. That's the biggest structural change to Part D in more than a decade.
The Medicare Prescription Payment Plan: spreading costs out
Hitting the annual cap early in the year is a relief in the long run — but paying it all in January or February can strain a fixed income. That's where the Medicare Prescription Payment Plan comes in.
This is a free, optional program available through any Part D plan or Medicare Advantage plan with drug coverage. Instead of paying your share at the pharmacy, you get a monthly bill from your plan that spreads your drug costs across the remaining months of the year. Your total doesn't change — the timing does.
A few things to know:
- You have to opt in. It doesn't happen automatically.
- You can sign up before the year starts or anytime during the year.
- If you miss a monthly payment, you can be removed from the program, though you'd still keep your drug coverage.
- It tends to help most if you have a large, predictable drug cost early in the year.
You can enroll through your plan directly. Medicare.gov has a fact sheet and a checklist to help you decide if it fits your situation.
How this affects Annual Enrollment decisions
San Jose is in Santa Clara County, where residents choosing 2027 coverage can pick from 23 Medicare Advantage plans offered by 10 carriers, along with stand-alone Part D plans. Plan availability and formularies are set at the county level, not the city level.
Because the cap ($2,100 in 2026, $2,400 in 2027) is now baked into every Part D plan, the questions to focus on this fall are more practical:
- Is each of my drugs on the plan's formulary (its list of covered drugs)?
- What tier is each drug on, and what's the copay or coinsurance?
- Which pharmacies are considered "preferred" by the plan?
- Does the plan charge a deductible, and if so, does it apply to my drugs?
The Plan Finder tool at medicare.gov lets you enter your specific prescriptions and ZIP code and compare estimated yearly drug costs across plans. That's the most accurate way to see how the 2027 rules will play out for your medications.
A note on higher-income surcharges
If your income is above $109,000 as a single filer (or $218,000 filing jointly) based on your most recent tax return on file with the IRS, you'll pay an IRMAA — Income-Related Monthly Adjustment Amount — on top of your Part D premium in 2026. The cap and payment plan still apply the same way; IRMAA only affects the monthly premium, not what counts toward the $2,100 in 2026 ($2,400 in 2027).
By the numbers
Medicare Part B premium, 2006–2026
The standard monthly Part B premium has climbed from $88.50 in 2006 to $202.90 in 2026. Hover any point for that year’s premium.
Source: CMS. Standard premium shown; in some hold-harmless years many existing enrollees paid less. Confirm at Medicare.gov.
By the numbers
How people get Medicare in Santa Clara County
(MA penetration in Santa Clara County)
MA penetration from CMS enrollment data; Medigap share is an estimate. U.S. average is about 54% Medicare Advantage. These are area-level figures, not plan-specific.
Prescription coverage
How Medicare Part D works in 2027
The old coverage gap ("donut hole") was eliminated in 2025, leaving three phases. There's a hard yearly cap on what you pay out of pocket for covered drugs — $2,100 in 2026 and $2,400 in 2027 — and you can spread those costs across the year with the Medicare Prescription Payment Plan.
Try it
How the 2026 Part D drug cap works
Slide to your estimated yearly prescription costs and see how the new $2,100 out-of-pocket cap protects you. This illustrates the standard Part D benefit; your plan may structure costs differently.
Once your out-of-pocket spending on covered drugs reaches $2,100, you pay nothing more for the rest of 2026. Confirm details at Medicare.gov.
Explore
When can you enroll? An interactive year
Enrollment windows are federal and the same nationwide. Confirm your personal dates at Medicare.gov or 1-800-MEDICARE.
Good to know
Frequently asked questions
Q: If I hit $2,100 in March, do I really pay nothing for the rest of the year?
Q: Does the $2,100 cap apply to Medicare Advantage plans too?
Q: Can I sign up for the payment plan mid-year if my drug costs suddenly go up?
- CMS — Medicare Part D program rules (medicare.gov)
For personalized answers, contact Medicare.gov, 1-800-MEDICARE, or your local SHIP.