Who actually pays for my Medical Part D coverage?

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 again in 2025 and may change each year.

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, your Medicare plan, and the brand-name drug manufacturer will share the cost of your formulary drugs and your cost-sharing will depend on your plan's coverage. For example, your plan may charge $4 for a Tier 2 generic drug and the plan will cover the balance of the retail drug price. For a Tier 4 brand-name drug, you pay 35%, the drug manufacturer pays 10% and your plan pays the balance. 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.

Medicare drug plan cost-sharing may depend on the formulary tier covering the drug

Catastrophic Coverage: Based on the Inflation Reduction Act (IRA), the Medicare Part D Catastrophic Coverage phase continues to be the final phase of your Medicare Part D prescription drug plan coverage, and during this phase, you pay nothing for formulary drugs purchased through the remainder of the year. You reach Catastrophic coverage when your out-of-pocket costs (TrOOP) reach the plan's TrOOP threshold or (RxMOOP) of $2,000 in 2025 ($2,100 in 2026).

Phases of your 2025 - and beyond - Medicare Part D coverage

The IRA changed 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%.

Beginning January 1, 2025 When you purchase a Part D formulary medication with a $100 retail cost
	Brand-name Drug Retail Cost	You Pay	Your Medicare drug plan pays	Pharma Mfgr. pays	Federal Govern. pays	Amount counting toward your RxMOOP Threshold
Initial Deductible (if any)	$100	$100	$0	$0	$0	$100
Initial Coverage phase - brand-drugs *	$100	$25	$65	$10**	$0	$25
Initial Coverage phase - generic-drugs *	$100	$25	$75	$0	$0	$25
Catastrophic Coverage (brand drug) ****	$100	$0	$60	$20	$20	n/a
Catastrophic Coverage (generic drug) ****	$100	$0	$60	$0	$40	n/a

* 25% coinsurance 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).
**** The Inflation Reduction Act (IRA) eliminated the Coverage Gap (Donut Hole) in 2025. For plan years 2025 and beyond, Medicare Part D beneficiaries 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 enter Catastrophic Coverage and have a $0 copay (no additional costs) for all formulary Medicare Part D drugs through the remainder of the year. 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.

Year	Catastrophic threshold (RxMOOP)
2025	$2,000
2026	$2,100
2027	$2,050
2028	$2,000
2029	$1,950
2030	$1,950
2031	$2,000
2032	$2,050

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 2025 Out-of-Pocket Cost 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 2026 PDP-Planner online for a preview of your 2026 plan coverage.

Historical Background: Medicare Part D coverage 2024

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.

Beginning January 1, 2024 When you purchase a Part D formulary medication with a $100 retail cost
	Retail Cost	You Pay	Your Medicare drug plan pays	Pharma Mfgr. pays	Federal Govern. pays	Amount counting toward your TrOOP Threshold
Initial Deductible	$100	$100	$0	$0	$0	$100
Initial Coverage phase *	$100	$25	$75	$0	$0	$25
Coverage Gap - brand-name **	$100	$25	$5	$70	$0	$95
Coverage Gap - generic ***	$100	$25	$75	$0	$0	$25
Catastrophic Coverage (brand drug) ****	$100	$0	$20	$0	$80	n/a
Catastrophic Coverage (generic drug) ****	$100	$0	$20	$0	$80	n/a

* 25% coinsurance 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). Historical Background: Medicare Part D coverage before 2024

2023 Medicare Part D coverage

Phases of your 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.

When you purchase a Part D formulary medication with a $100 (or $200) retail cost
	Retail Cost	You Pay	Your Medicare drug plan pays	Pharma Mfgr. pays	Federal Govern. pays	Amount counting toward your TrOOP Threshold
Initial Deductible	$100	$100	$0	$0	$0	$100
Initial Coverage phase *	$100	$25	$75	$0	$0	$25
Coverage Gap - brand-name **	$100	$25	$5	$70	$0	$95
Coverage Gap - generic ***	$100	$25	$75	$0	$0	$25
Catastrophic Coverage (brand drug) ****	$200	$10	$30	$0	$160	n/a
Catastrophic Coverage (generic drug) ****	$100	$5	$15	$0	$80	n/a

* 25% coinsurance 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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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
https://www.cms.gov/data-research/ statistics-trends-and-reports/ trustees-report-trust-funds/ trustees-reports-current-and-prior

https://www.cms.gov/newsroom/ fact-sheets/ draft-cy-2026-part-d-redesign-program-instructions-fact-sheet