Mintz IRA Update — Redesigning Part D for CY 2026

This article is part of the Mintz IRA Update – Fifth Edition. Explore the full series of IRA-related insights here.

The Inflation Reduction Act of 2022 (IRA) adopted many changes to the Medicare Part D program and plan benefit design. Instead of reforming the Part D program all at once, the IRA set forth a path for the Medicare Part D program to evolve through the years. One of the tools that the Centers for Medicare & Medicaid (CMS) uses to implement IRA-needed changes and provide guidance to Part D plan sponsors about upcoming changes is the “Redesign Instructions.” The Final CY 2026 Part D Redesign Program Instructions (2026 Redesign Instructions) largely mirror the Final CY 2025 Part D Resign Program Instructions, which we covered in our third edition.

In this issue, we provide an update on the key changes made to Medicare Part D as explained in the 2026 Redesign Instructions since our last issue.

The 2026 Redesign Instructions finalized the following changes that we discussed at length in our last issue:

• Increase in Beneficiary OOP Cost Maximum to $2,100.
• Establishment of the Selected Drug Subsidy Program. The Selected Drug Subsidy Program lowers Part D sponsor liability on the negotiated price of selected drugs. The 2026 Redesign Instructions provide guidance on several topics related to the subsidy, including the policy for drugs not subject to the defined standard deductible, selected drug subsidy prospective payments, and reinsurance methodology.
• Creditable Coverage Determination. Creditable Coverage Determination methodology is used to assess whether a non–Part D prescription drug plan provides coverage that is at least as good as Medicare Part D. If an individual does not enroll in Part D when they become Medicare eligible, they face a penalty when they elect to enroll unless they maintained “Creditable Coverage” prior to Part D enrollment. Under the 2026 Redesign Instructions, CMS provides two main options for determining whether a plan offers Creditable Coverage: (1) the actuarial equivalence method that requires actuarial analysis comparing the employer plan to the standard Part D benefit; and (2) the simplified determination method available for non–Retiree Drug Subsidy (non-RDS) plans, which requires a group health plan (GHP) to be designed to pay at least 60% of a participant’s prescription drug expenses. Given the changes to the Part D benefit under the IRA, CMS felt the simplified determination methodology no longer reflected actuarial equivalence with defined standard Part D coverage. Therefore, CMS revised the simplified determination methodology to require GHP coverage to be designed to pay at least 72% of participants’ prescription drug expenses. For CY 2026 only, non-RDS group health plans (GHPs) are allowed to use either the existing (60%) or revised (72%) simplified determination methodology — but for CY 2027 and beyond, they will be expected to use the revised approach. The 2026 Redesign Instructions noted general support from commenters on the revised simplified determination methodology proposed by CMS.

The 2026 Redesign Instructions also provided new changes and guidance:

• Redesigned Part D Benefit. The 2026 Redesign Instructions added new requirements to the Initial Coverage and Catastrophic phases of the Part D benefit. Now, during the initial coverage phase, CMS will pay a 10% subsidy for selected drugs during a price applicability period; in the catastrophic phase, CMS will provide 40% reinsurance for selected drugs during a price applicability period.
• PDP Meaningful Difference. In response to sponsors’ concerns, CMS revised the meaningful difference standard for standalone Part D Prescription Drug Plans (PDPs), lowering the threshold from the 15% that was included in the Draft Instructions to 10% for CY 2026. This change means that Part D plan sponsors must demonstrate that each Enhanced Alternative plan’s Part D OOP Cost value generated from the OOP Cost model is at least 10% lower than the Part D OOP Cost value for the basic plan offered by the same parent organization in the same region.
• Successor Regulation Exception Permitting Formulary Substitutions of Selected Drugs. The 2026 Redesign Instructions adopts Section 423.120(e)(2)(i) and the associated notice requirements at Section 423.120(f)(2), (3), and (4) as the “successor regulation” to Section 423.120(b)(5)(iv) for purposes of allowing immediate substitution or negative formative changes for selected drugs when an applicable generic or interchangeable biological product becomes available.

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