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 plan,
• the brand-name drug manufacturer,
• and the federal government (Medicare)

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%).  (The Coverage Gap is eliminated in 2025, see lower section.)

Catastrophic Coverage:  In the 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), you will pay around (5%) and your Medicare plan will pay (15%). (The Catastrophic Coverage phase is effectively eliminated in 2024 for Part D plan members - in 2025, the Medicare 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%.  See last section below.)

Remember, to be covered by your Part D plan, 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.

Below is a chart showing how 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% co-insurance for calculating cost-sharing (this chart will change in 2024 - and even more so in 2025, please see more in the next section).


* 25% co-pay 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 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 a 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.

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Important changes coming January 1, 2024:

In 2024, the Inflation Reduction Act (IRA) of 2022 eliminates cost-sharing in the Catastrophic Coverage phase for Medicare Part D plan members. 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).

Below is a chart showing how 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% co-insurance for calculating cost-sharing.


* 25% co-pay 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).
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Important changes coming January 1, 2025:

In 2025, the IRA eliminates the Coverage Gap and extends the Initial Coverage Limit until a person has spent $2,000 out-of-pocket for Part D formulary drugs.  The $2,000 will represent the prescription drug maximum out-of-pocket spending limit (RxMOOP).  When a person reaches the RxMOOP (that can change from the $2,000 each year), the plan member will not have any additional costs for Part D formulary drugs for the remainder of the year.

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.



* 25% co-pay 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.
**** 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 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 a 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.
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See: