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What is Medicare Part D Catastrophic Coverage?


Medicare Part D Catastrophic Coverage is the fourth and 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 - once you reach Catastrophic Coverage, your formulary drug costs (for brand-name and generics) are significantly reduced for the remainder of the year.  

More specifically, after you meet your Medicare Part D prescription drug plan's 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.

For example, in 2019, you reached Catastrophic Coverage after you spent $5,100 out-of-pocket - and in 2020, you will spend $6,350 before entering Catastrophic Coverage.

In the Catastrophic Coverage phase, you will pay the greater of a flat fee (set annually) or 5% of the plan's negotiated retail drug cost 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 2020, you pay the higher of either 5% of retail prices or $8.95 for brands or $3.60 for generics in Catastrophic Coverage.  So, if you are using a single-source, brand drug with a $500 retail price, you would pay 5% of retail or $25 (5% of $500 = $25), since $25 is higher than $8.95.

Medicare Part D Coverage Phases

 

Catastrophic Coverage is the same for all Medicare Part D plans.

If you reach the Catastrophic Coverage phase, you will find that your Medicare Part D Catastrophic Coverage phase has the same cost-sharing structure as every other Medicare Part D plan.  Your actual drug cost in this phase can vary between drug plans since your cost may be based on your Medicare Part D plan's negotiated retail drug price - and retail drug prices can vary between Medicare Part D prescription drug plans. 

Catastrophic Coverage costs change over the years.

The chart below shows the cost-sharing for the Catastrophic Coverage phase over the past few years. You will pay the greater of  the annual co-pay (for brands or generics) or 5% of the formulary drug's negotiated retail price.

For example, if you are using a brand-name drug with a retail cost of $100, your coverage cost in the 2020 Catastrophic Coverage phase would be $8.95 (since $8.95 is greater than $5 - or 5% of $100).

Click the plan year to see examples and more details for a specific year or click here to see a chart of Medicare Part D plan parameters for all years since 2006

Catastrophic Coverage Phase Cost-Sharing
Plan Year TrOOP Generics or
Preferred Brand Drugs
that are Multi-Source Drugs
All Other Drugs
2020 $6,350 $3.60 $8.95
2019 $5,100 $3.40 $8.50
2018 $5,000 $3.35 $8.35
2017 $4,950 $3.30 $8.25
2016 $4,850 $2.95 $7.40
2015 $4,700 $2.65 $6.60
2014 $4,550 $2.55 $6.35
2013 $4,750 $2.65 $6.60

Remember: You only get Catastrophic Coverage for formulary medications.

Keep in mind that the Catastrophic Coverage phase cost-sharing only applies to medications that are on your Part D plan's formulary (or drug list).  Therefore, if you take an expensive medication that is not covered on you Medicare Part D formulary, you will be responsible for 100% of the drug's cost even when in the Catastrophic Coverage phase.

What to do when you have a non-formulary drug and you have reached Catastrophic Coverage?

If you reach the Catastrophic Coverage phase, and you begin using a non-formulary medication, you may wish to file for a formulary exception to have the drug added to your Medicare Part D plan coverage so that it will be covered during all phases of your Medicare Part D coverage.  Your Medicare plan does not automatically grant a formulary exception request and you may need to appeal a negative decision.  If your Medicare prescription drug plan does approve your request, the medication will usually be added to the specialty drug tier.

Where does Catastrophic Coverage fit into my Medicare drug plan and annual spending?

Your Medicare Part D plan will have four possible phases or parts.

(1) The Initial Deductible.  If your Medicare Part D plan has an initial deductible, you will pay 100% of this amount ($435 in 2020) (unless certain drugs are excluded from the deductible, such as Tier 1 and Tier 2 drugs).

(2) The Initial Coverage Phase.  After meeting your initial deductible or if your Medicare plan has a $0 deductible, you will share the cost of your drugs with your plan during this phase.  Once the retail value of your drug purchases reaches a certain point ($4,020 in 2020), (not what you paid, but the retail value), you will exit the Initial Coverage Phase and enter the Donut Hole or Coverage Gap.

(3)  The Coverage Gap or Donut Hole.  During the Donut Hole, you will receive a discount on the price of your Medicare Part D drugs until you have spent a certain amount out-of-pocket ($6,350 in 2020) and then you will exit the Donut Hole and enter the Catastrophic Coverage phase.

(4)  The Catastrophic Coverage Phase.  The forth and final phase of your Medicare Part D plan coverage.

To help you visualize the phases of your Medicare Part D prescription drug plan coverage, we have a Donut Hole Calculator or 2020 PDP-Planner online illustrating the changes in your monthly estimated costs based on the established 2020 standard Medicare Part D plan limits mentioned above.

And to give you an overview of your Medicare Part D spending . . . our Donut Hole Calculator.

We also have several examples online to help you get started with our 2020 PDP-Planner tool. You can click here for an example of a Medicare beneficiary with relatively high monthly prescription drug costs (retail prescription drug cost of $800 per month - resulting in annual out-of-pocket drug spending of about $2,667) and then change the monthly drug cost to whatever you wish.

How do my costs change throughout my Medicare drug plan coverage?

Here is how example formulary drug purchases are calculated throughout your 2020 Medicare Part D plan (using the CMS defined standard benefit Medicare Part D plan as a guide).


When you purchase a formulary medication
with a $100 ($200) cost in 2020

 

Example
Retail
Drug Cost

You Pay

Your
Medicare
Part D
Plan Pays

Drug Mfg. Pays

U.S.
Gov. Pays

Amount counting toward your ICL

Amount counting toward your TrOOP

Part 1
Initial Deductible

$100

$100

$0

$0

$0

$100

$100

Part 2
Initial Coverage Phase *

$100

$25

$75

$0

$0

$100

$25

Part 3
Coverage Gap - brand **

$100

$25

$5

$70

$0

n/a

$25+$70
= $95

Coverage Gap - generic ***

$100

$25

$75

$0

$0

n/a

$25

Part 4
Catastrophic Coverage (brand-name drug) ****

$200

$10

$30

$0

$160

n/a

n/a

Catastrophic Coverage (generic drug) ****

$100

$5

$15

$0

$80

n/a

n/a


* 25% co-pay or cost-sharing
** 75% Brand-name Discount
*** 75% Generic Discount
**** you pay 5% of retail or $8.95 for brand drugs whatever is higher or 5% of retail or $3.60 for generic or multi-source drugs whatever is higher (80% paid by Medicare, 15% paid by Medicare plan, and around 5% by plan member)
"n/a" - "not applicable" to this phase or part of your Medicare Part D plan coverage

What do I pay in Catastrophic Coverage if I qualify for the Medicare Part D Extra Help program?

Your cost in the Catastrophic Coverage phase can vary slightly depending on your level of Extra Help - and this amount can vary year-to-year.  If you qualify for full LIS benefits, you will have a $0 co-pay in the Catastrophic Coverage phase.  However, if you receive 75% LIS benefits (between 135% and 150% of FPL), you will pay a portion on your drug costs.  For example, if you reach the 2020 Catastrophic Coverage phase and you receive 75% LIS benefits, you will pay $3.60 for generic / preferred multi-source drugs and $8.95 for all other formulary drugs.  Catastrophic Coverage costs for full- and partial LIS beneficiaries can be found online in our table Medicare Part D Standard Benefit Model Plan Parameters under the bottom section "Maximum Copayments above Out-of-Pocket Threshold".

How many Medicare Part D beneficiaries actually enter into the Catastrophic Coverage phase?

According to research from the Kaiser Family Foundation, "3.6 million Medicare Part D enrollees had total drug spending above the catastrophic coverage threshold [in 2015].  Of this total, 2.6 million enrollees received low-income subsidies [LIS], but 1 million enrollees did not, and incurred out-of-pocket drug spending above the catastrophic threshold." [emphasis added]  (For more information, please see https://www.kff.org/medicare/issue-brief/no-limit-medicare-part-d-enrollees-exposed-to-high-out-of-pocket-drug-costs-without-a-hard-cap-on-spending/)





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