Depending on the stage of your Medicare Part D coverage, a portion of your medication cost is paid by one or more of the following:

• You,
• Your Medicare drug plan,
• Pharmaceutical companies - the brand-name drug manufacturer,
• and the federal government (Medicare)
  
  Important: The percentage of Medicare Part D coverage paid by each has changed since 2023, and will change again in 2025.
  

In the Initial Deductible:  If your Medicare Part D plan has an initial deductible, you will pay 100% of the formulary drug costs before meeting your deductible, unless your low-cost drugs are exempt from the plan's deductible (for example, low-cost Tier 1 and Tier 2 drugs are exempt from the plan's deductible - or the Medicare drug plan has a $0 deductible and you begin at the next phase.

Initial Coverage Phase:  During your Medicare plan's Initial Coverage phase, you and your Medicare plan will share the cost of your formulary drugs and the cost-sharing will depend on your plan's coverage.  For example, your plan may charge your $5 for a Tier 1 Generic drug and the plan will cover the balance of the retail drug price.  You can see how each Medicare Part D or Medicare Advantage plan covers your formulary drugs by looking at the Formulary Tier information on our Medicare Part D plan finder or Medicare Advantage plan finder.


Coverage Gap:  If you reach the Donut Hole or Coverage Gap,  you and your Medicare plan share your generic drug costs and your brand-name drug purchases are paid for by you (25%), your Medicare drug plan (5%), and the largest portion of your covered brand-name prescription costs while in the Donut Hole are paid by the pharmaceutical manufacture (70%).
Important:  The Coverage Gap is eliminated in 2025, see section below.

Catastrophic Coverage:  Based on the Inflation Reduction Act, the Medicare Part D Catastrophic Coverage phase will remain the fourth and final part of your Medicare Part D prescription drug plan coverage - however - cost-sharing for formulary drugs purchased in the Catastrophic Coverage phase will be eliminated for all Medicare beneficiaries - through the remainder of the year.  A Medicare Part D plan member will not have any out-of-pocket costs after reaching the plan's total out-of-pocket threshold (TrOOP) of $8,000.  Therefore, 2024 TrOOP will become the prescription drug maximum out-of-pocket spending threshold (RxMOOP).

In the 2024 Catastrophic Coverage phase of your Medicare Part D plan coverage, the federal government pays most (80%) of your medication costs (reimbursing the Medicare drug plan for a large portion of the Catastrophic Coverage cost) and your Medicare plan will pay (20%) - you will pay $0.

2024 Medicare Part D coverage


Remember, to be covered by your Part D plan - in any phase of coverage - your medication must be on your Medicare Part D plan's drug list or formulary.  You can request a Formulary Exception to have a non-formulary medication added to your drug list.

Who is paying for 2024 Medicare Part D coverage?

Below is a chart showing example formulary drug purchases are paid throughout your Medicare Part D plan coverage -- using the CMS defined standard benefit Medicare Part D plan with a fixed 25% coinsurance for calculating cost-sharing.




* 25% copay or cost-sharing
** 75% Brand-name Discount
*** 75% Generic Discount
**** In 2024, the Catastrophic Coverage phase will still exist, but a plan member will not have any out-of-pocket costs for formulary drugs after reaching the plan's $8,000 total out-of-pocket threshold (TrOOP).

Important Update:  2024 is the last year for the Coverage Gap or Donut Hole.

Starting in 2025, the Inflation Reduction Act (IRA) eliminates the Coverage Gap (Donut Hole).  In 2025 and beyond, Medicare Part D beneficiaries will stay in the Initial Coverage phase until their out-of-pocket spending for Part D formulary drugs (TrOOP) reaches the maximum out-of-pocket spending limit for Part D formulary drugs (RxMOOP) - which is set at $2,000 for 2025.  After reaching RxMOOP, Medicare Part D beneficiaries will enter Catastrophic Coverage and have a $0 copay (no additional costs) for all formulary Medicare Part D drugs through the remainder of the year.

2025 Medicare Part D coverage


Who is paying for Medicare Part D coverage in 2025 and beyond?

At this same time, the IRA will also change the percentage of the drug costs allocated to the brand-name drug manufacturer, Medicare Part D plan, and the federal government.  For example, in the 2025 Catastrophic Coverage phase - and continuing on, the Medicare Part D plan will pay (60%), the federal government will pay (20%) and the brand-name drug manufacturer will pay 20% - for brand drugs.  For generic drugs, the federal government will pay 40% and the Medicare plan will pay 60%.



* 25% copay or cost-sharing until you reach the $2,000 RxMOOP, then your Part D formulary drug costs are $0 for the remainder of the year.
** The 10% brand-name drug manufacturer discount applied in the 2025 Initial Coverage Phase (after the standard deductible) does not apply toward the $2,000 TrOOP threshold (https://www.cms.gov/files/document/manufacturer-discount-program-final-guidance.pdf).
**** Starting in 2025, the Coverage Gap (or Donut Hole) will no longer exist for plan members.  A plan member will stay in the Initial Coverage phase until exceeding the plan's $2,000 out-of-pocket spending threshold and enter Catastrophic Coverage where for the remainder of the year, the person will not have any out-of-pocket costs for formulary drugs.


Question:  Can the $2,000 RxMOOP threshold for 2025 and beyond change every year?

Yes.  Like other Medicare Part D plan parameters, the annual $2,000 RxMOOP can (and probably will) change every year.  Currently, the Catastrophic Coverage threshold (or RxMOOP) is predicted to decrease over time (https://www.cms.gov/oact/tr/2023).

Year	Catastrophic threshold (RxMOOP)
2024	$8,000
2025	$2,000
2026	$2,000
2027	$1,950
2028	$1,850
2029	$1,800

Need some help planning your spending throughout the phases of your Medicare drug coverage?

To help you visualize the phases of your Medicare Part D prescription drug plan coverage, we have our 2024 Donut Hole Calculator or PDP-Planner online illustrating the changes in your monthly estimated costs based on the established annual standard Medicare Part D plan limits mentioned above.   We also have our 2025 Out-of-pocket Cost Calculator online for a preview of plan coverage without the Donut Hole and no cost-sharing in Catastrophic Coverage.

Historical Background: Medicare Part D coverage before 2024

2023 Medicare Part D coverage



Who paid for your Medicare Part D coverage back in 2023?

Below is a chart showing how example formulary drug purchases were paid throughout your Medicare Part D plan coverage -before  2023 -- using the CMS defined standard benefit Medicare Part D plan with a fixed 25% coinsurance for calculating cost-sharing.



* 25% copay or cost-sharing
** 75% Brand-name Discount
*** 75% Generic Discount
**** In 2023, you pay the higher of 5% of retail or $10.35 for brand-name drugs and you pay the higher of 5% of retail or $4.15 for generic and multi-source drugs. (80% paid by Medicare, 15% paid by Medicare plan, and around 5% by plan member) - in 2024, the Catastrophic Coverage phase will be "closed" (or no longer exist for the plan member) and a person will not have any out-of-pocket costs after reaching the plan's total out-of-pocket threshold (TrOOP) of $8,000.

Need some help visualizing spending throughout the phases of 2023 Medicare drug coverage?
To help you understand spending through the phases of your 2023 Medicare Part D prescription drug plan coverage, we have still have our 2023 Donut Hole Calculator online illustrating the changes in your monthly estimated costs based on the established annual standard Medicare Part D plan limits mentioned above.

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