How Medicare Part D Changes May Impact Employer Plans in 2026 and 2027

The Inflation Reduction Act of 2022 (IRA) is reshaping Medicare Part D in 2026–2027. While many changes lower costs for retirees, they may also affect employer-sponsored prescription drug coverage.

Calendar Year 2026

• Indexed annual out-of-pocket limit (OOP): The annual out-of-pocket maximum is set at $2,100 for 2026.
• Revised liability framework: Part D includes revised liability to reflect negotiated prices taking effect for selected drugs in 2026.
• Revised creditable coverage method: For 2026 only, non-retiree drug subsidy (RDS) plans can use either the prior simplified method or a revised simplified method to confirm creditable coverage.

Calendar Year 2027

• Coverage gap formally eliminated: The Part D coverage gap (“donut hole”) was permanently eliminated in 2025 under the redesigned benefit.
• Annual OOP limit: The annual OOP cap remains in effect and continues to be indexed annually; once the limit is reached, enrollees have no additional cost-sharing for covered drugs.
• Prior creditable coverage method expires: Starting in 2027, non-RDS plans must use the revised simplified method to determine creditable coverage.

Creditable Coverage

Employers that provide prescription drug coverage to Medicare-eligible employees or retirees, must inform them and the Centers for Medicare and Medicaid Services whether their prescription coverage is “creditable,” meaning it is at least as rich as Medicare Part D coverage.

Because the IRA is reshaping Part D, the simplified test for creditable coverage has been updated. Under the revised method, the plan must cover, on average, at least 72% of drug costs in 2026 and 73% in 2027 (up from 60%) to remain creditable.

Employes should work with their benefits advisers to apply the new test for 2026–2027 and ensure they send the correct Medicare Part D disclosure notices.

Employer Consideration

Medicare Part D changes under the IRA stay in effect for 2026 and become permanent in 2027 and beyond. Employers who offer prescription drug coverage to Medicare-eligible employees or retirees should understand how the new rules affect their creditable coverage status, review their prescription drug cost and risk-management strategies, and work with their benefits advisor to apply the revised simplified determination method. Download the bulletin for more details.