Medicare Part D Coverage Phases

Medicare Part D has three coverage phases: the deductible phase, the initial coverage phase, and the catastrophic coverage phase. In 2027, the maximum Part D deductible is $700, and the annual out-of-pocket limit for covered Part D drugs is $2,400.

Your plan may have a lower deductible, different copayments or coinsurance, and drug tiers with different costs. If you qualify for Extra Help, your costs may be lower. Check your plan’s formulary and pharmacy network for the costs that apply to you.

Deductible Phase

If a deductible applies, you generally pay the cost of the drugs subject to it until you meet your plan’s deductible. The maximum deductible for 2027 is $700. Some plans have a lower deductible or no deductible, and some drugs or tiers may be exempt from it.

If your plan has no deductible, or a covered drug is exempt from it, you pay the applicable initial coverage cost sharing for that drug right away.

Initial Coverage Phase

After any applicable deductible, you pay your plan’s cost sharing for covered Part D drugs. Under the standard Part D benefit, the member’s initial coverage coinsurance is 25%. Your plan may instead use copayments or different coinsurance by drug tier, so 25% is not a universal charge for every plan or drug.

You remain in this phase until your true out-of-pocket costs (TrOOP) reach $2,400 in 2027. TrOOP includes your deductible, copayments and coinsurance for covered Part D drugs, plus certain eligible payments made on your behalf. Your plan tracks what counts toward this limit. Part D premiums and the cost of drugs not covered by Part D do not count toward it.

Catastrophic Coverage Phase

Once you reach the $2,400 limit in 2027, you enter catastrophic coverage and pay nothing for covered Part D drugs for the rest of the calendar year. This does not remove your plan premium or make noncovered drugs free.

What Changed in Recent Years?

• 2024: Member cost sharing in the catastrophic phase was eliminated. The former 5% member coinsurance did not continue into 2024.
• 2025: The coverage gap, also called the donut hole, was removed as a separate phase. The redesigned Part D benefit has three phases and an annual out-of-pocket limit for covered Part D drugs.
• 2027: The standard maximum deductible is $700 and the covered Part D out-of-pocket limit is $2,400. Keep your own plan’s deductible and drug cost sharing separate from these national reference amounts.

Sources: Medicare.gov: Costs for Medicare drug coverage; CMS: Part D improvements under the Inflation Reduction Act; CMS: Lower out-of-pocket drug costs in 2024 and 2025.