Medicare Part D covers prescription medications. Costs vary depending on certain coverage phases, including catastrophic coverage.
In this article, learn more about catastrophic coverage, including costs and how to seek financial support.
Glossary of Medicare terms
We may use a few terms in this article that can be helpful to understand when selecting the best insurance plan:
- Out-of-pocket costs: An out-of-pocket cost is the amount a person must pay for medical care when Medicare does not pay the total cost or offer coverage. These costs can include deductibles, coinsurance, copayments, and premiums.
- Deductible: This is an annual amount a person must spend out of pocket within a certain period before an insurer starts to fund their treatments.
- Coinsurance: This is the percentage of treatment costs that a person must self-fund. For Medicare Part B, this is 20%.
- Copayment: This is a fixed dollar amount a person with insurance pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
Medicare rules that after a person reaches the age of 65 years, they must have creditable drug coverage. Otherwise, they may incur a penalty. Part D plans offer coverage for prescription drug costs.
However, private companies administer these plans, and they are only available to people enrolled in original Medicare (Part A and Part B). They are not available to a person with a Medicare Advantage plan.
Medicare Part D plans have four coverage phases for prescription drugs. These are as follows:
- Deductible: Individuals with a Part D plan pay a deductible before their plan covers the cost. During the deductible phase, people with a Part D plan pay the full cost of their prescription. The deductibles may vary from plan to plan, though Medicare guidelines set a maximum deductible.
- Initial coverage: After an individual meets their deductible, their Part D plan covers some of the cost of their prescription medications. During the initial coverage phase, a person’s plan pays some of the costs, and the individual pays a coinsurance. The amount of time a person stays in the initial phase depends on their drug costs.
- Coverage gap: The coverage gap is the phase that occurs after an individual and their drug plan have covered a certain amount. The coverage gap, or the donut hole, means that there is a temporary limit on the amount a plan pays for medications. Once a person reaches the coverage gap, they will not pay any more than 25% of the cost of their plan’s covered brand-name medications. Not everyone gets to this phase, including people with low medication costs.
- Catastrophic coverage phase: Individuals may reach this phase if they meet the maximum out-of-pocket (OOP) limit. During this phase, a person’s prescription drug costs decrease. The maximum OOP limit changes each year.
Expenses counting toward OOP costs include the following:
- yearly deductible
- costs paid during the initial coverage phase
- costs paid during the coverage gap
- 95% of the cost of brand-name medications
Costs that do not help a person reach their catastrophic coverage limit include:
- monthly Part D premiums
- cost of non-covered medications
- costs of covered medications from pharmacies outside of a person’s Part D plan
Although Part D plans vary, all plans provide the same catastrophic coverage. However, the differences in retail medication costs may affect the amount a person pays while in the catastrophic phase.
A person’s Part D plan should keep track of how much money the individual spends out of pocket, and the expenses may appear on the person’s monthly statement.
The catastrophic phase of Part D coverage happens when a person reaches their maximum OOP expenses.
For 2024, the OOP limit is $8,000 out of pocket. A person will then be out of the coverage gap for Medicare prescription drug coverage and will automatically get catastrophic coverage.
That means that they will pay a small amount for copay or coinsurance for the remaining months of the year.
The costs for Medicare Part D covered medications usually change every year. For 2024, the costs are as follows:
- Deductibles: Although deductibles vary between Part D plans, Medicare rules ensure that the maximum deductible in 2024 is $545. Some Part D plans do not have a deductible.
- Coverage gap: In 2024, after both a plan and an individual has spent $5,030, the individual will move into the coverage gap.
- OOP expenses: In 2024, the allowed OOP expense is $8,000,. After an individual hits that limit, they will automatically get catastrophic coverage.
After the catastrophic phase
Once a person meets the catastrophic threshold in their coverage ($8,000), they will pay nothing for their covered part D drugs for the rest of the year.
It is essential to note this only applies to medications on a person’s Part D plan drug list. People taking an uncovered medication will pay the drug’s full cost, even in the catastrophic stage.
Some programs may provide assistance with costs. Different programs may have varied eligibility requirements, including income and asset limits.
Some programs that provide help and support include:
- State Pharmaceutical Assistance Programs: Individual states administer these programs. For this reason, programs work differently. For instance, some states provide help for people with certain conditions, such as HIV or AIDS, to pay for their prescription medications.
- Medicare Coverage Gap Discount Program: This program makes discounts from drug manufacturers available to people with Medicare Part D plans while in the coverage gap.
- Extra Help: The Extra Help program helps people with limited incomes pay for Part D costs, including deductibles, premiums, and coinsurance.
Medicare Part D catastrophic coverage is the phase that occurs after a person meets their maximum OOP expenses. In 2024, that maximum expense is $8,000.
In the catastrophic coverage phase, individuals will not need to pay for their authorized Part D prescription medications for the remainder of the calendar year.