During the 2023 Catastrophic Coverage phase, the Medicare Part D plan member pays up to 5% of the formulary drug's retail cost.

Of the remaining 95% of the total retail drug cost, 80% of the cost is paid by the federal government or Medicare’s reinsurance subsidy, 15% of the retail drug cost is paid by the Medicare prescription drug plan (Medicare Part D plan or Medicare Advantage plan).

So, as is illustrated in the example below, if you reach the 2023 Catastrophic Coverage phase, buy a brand-name formulary drug with a $300 retail cost, you will pay $15 for the drug, the federal government pays $240, and the Medicare Part D prescription drug plan pays $45.

Question: What exactly is the Catastrophic Coverage?

Medicare Part D Catastrophic Coverage is the final part of your Medicare Part D prescription drug plan coverage - and is reached after you have spent a certain amount of money on your prescription drugs during the year.  That is, after you have spent more than your Medicare drug plan's total out-of-pocket spending limit (TrOOP), you will exit the Coverage Gap or Donut Hole phase of your Medicare drug plan and enter the Catastrophic Coverage phase.

In the Catastrophic Coverage phase, you will pay either a flat co-pay fee (set annually) or 5% of the plan's negotiated retail drug cost (whichever is greater) for your formulary medications, depending on the type of drug -- generics or preferred brand drugs that are multi-source drugs vs. all other drugs.

For example, in 2023, you will pay the higher of either 5% of the drug's retail price or $10.35 for brand name drugs or $4.15 for generic drugs in Catastrophic Coverage.

So in 2023, if you purchase a brand-name drug with a retail price of $100 in the Catastrophic Coverage phase, you will pay $10.35 for the prescription fill since the fixed $10.35 brand-name drug co-pay is higher than 5% of the $100 retail drug price (or $5).  But, if you purchase a brand-name formulary drug with a retail cost of $300, you will pay $15 in the 2023 Catastrophic Coverage phase since 5% of $300 ($15) is more than the 2023 fixed co-pay of $10.35.

2023 Medicare Part D coverage

Simple example of 2023 Medicare Part D plan coverage costs

Here is how example formulary drug purchases are calculated throughout your 2023 Medicare Part D plan (using the CMS defined standard benefit Medicare Part D plan as a guide).


* 25% co-pay or cost-sharing
** 75% Brand-name Donut Hole Discount
*** 75% Generic Donut Hole Discount
**** In 2023, you pay 5% of retail or $10.35 for brand drugs whatever is higher or 5% of retail or $4.15 for generic or multi-source drugs whatever is higher (80% paid by Medicare, 15% paid by Medicare plan, and around 5% by plan member)

Tip:  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.com 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:


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 plan members will not have any out-of-pocket costs for formulary drugs after reaching the plan's $8,000 total out-of-pocket threshold (TrOOP).

2024 Medicare Part D coverage



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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.  As noted below, the $2,000 out-of-pocket threshold or RxMOOP can change every year.

Medicare Part D coverage 2025 and beyond



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.

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

See:
https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_of_2022.pdf
https://www.congress.gov/bill/117th-congress/house-bill/5376/text
https://www.cms.gov/files/document/2024-announcement-pdf.pdf
https://www.cms.gov/oact/tr/2023