Medicare Part D Coverage Phases
Medicare Part D Coverage Phases
Medicare Part D has three coverage phases: the Deductible Phase, the Initial Coverage Phase, and the Catastrophic Coverage Phase. This structure has been in place since 2025, when the coverage gap was fully closed.
For current Medicare plans, Part D simplifies drug coverage by capping out-of-pocket costs and streamlining the phases. Here’s how each phase works:
Deductible Phase
In the deductible phase, you pay 100% of your prescription drug costs until you meet your plan’s deductible. The maximum deductible for 2025 is $590, though some plans may offer a lower deductible or waive it entirely for certain drugs, like generics. If your plan has no deductible, you start with the initial coverage phase immediately.
It’s important to note that plans may choose to offer lower deductibles or no deductible at all for certain medications. Additionally, if your plan does not cover a particular drug, you will be responsible for paying the full cost, regardless of your deductible or out-of-pocket status.
Initial Coverage Phase
Once you meet your deductible, you enter the initial coverage phase. In this phase, you pay 25% of the cost of your covered prescription drugs, while your plan covers 65% of the cost. For brand-name drugs, manufacturers also contribute 10% of the cost. You remain in this phase until your out-of-pocket costs reach $2,000.
During this phase, drug costs can vary by plan based on how the plan has negotiated prices with pharmacies and manufacturers. It’s also worth reviewing your plan’s formulary since drugs are often placed into tiers, with lower tiers generally costing less out-of-pocket than higher-tier drugs.
Catastrophic Coverage Phase
After you reach $2,000 in out-of-pocket spending, you enter the catastrophic coverage phase. In this phase, you pay nothing for covered prescription drugs for the remainder of the year. This is a major improvement from previous years when beneficiaries had to pay 5% of drug costs in the catastrophic phase.
Keep in mind that uncovered drugs (those not on your plan’s formulary) may still require you to pay full price, even during this phase. Enhanced Part D plans may provide coverage for these drugs, but they can come with higher premiums or cost-sharing for uncovered medications.
Key Changes for 2025
- $2,000 out-of-pocket cap: A new out-of-pocket spending cap ensures that once you’ve spent $2,000 on prescription drugs, you no longer pay anything for the rest of the year.
- Elimination of the coverage gap: The “donut hole” phase has been fully closed, leaving only three coverage phases: deductible, initial coverage, and catastrophic coverage.
- Zero cost-sharing in catastrophic phase: Previously, beneficiaries were required to pay 5% of drug costs in the catastrophic phase. Starting in 2025, once you reach the $2,000 limit, you pay nothing for covered drugs.
Citation: Part D Improvements under the Inflation Reduction Act. Centers for Medicare & Medicaid Services.
Citation: CMS 2025 Part D Bid Information and Premium Stabilization Demonstration. Centers for Medicare & Medicaid Services.
Thomas DeMichele
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