What to Know About Part D Catastrophic Coverage

Stages of Part D coverage

In 2025, Medicare Part D typically has three stages of coverage: the deductible stage, the initial stage, and the catastrophic stage. Your drug costs may change throughout the year as you move from one stage of coverage to the next.

Deductible stage

The deductible stage is the first stage of Part D coverage. While in the deductible stage, you pay the full cost of your medications until you meet your deductible.

Because Part D plans are offered by third-party insurance companies, your costs — including the deductible — will vary. In 2025, the maximum annual deductible for a Part D plan is $590. Some plans have no deductible.

Initial stage

After meeting your deductible, you enter the initial stage of coverage. During the initial stage, you and your insurance company will split the cost of your medication according to the rules outlined in your plan.

You’ll typically pay 25% of the Medicare-approved cost of your brand-name or generic medications. This is known as a coinsurance.

The initial stage ends and catastrophic coverage begins when you’ve spent $2,000.

Catastrophic stage

As long as you have catastrophic coverage, you won’t pay anything for your medications for the rest of the year. Your out-of-pocket spending is capped at $2,000.

Coverage gap

Before 2025, there was an additional stage called the coverage gap, or donut hole. The donut hole occurred after the initial stage and before the catastrophic stage.

While in the donut hole, people typically paid a higher coinsurance for their medications until reaching catastrophic coverage. But the specific rules varied among plans.

The new out-of-pocket maximum has eliminated the donut hole.

Benefits of catastrophic coverage

Catastrophic coverage can offer significant financial relief to individuals, particularly those who take expensive medications.

In 2025, the Inflation Reduction Act went into effect. It established an out-of-pocket maximum of $2,000 for drug spending under Medicare Part D. This is significantly lower than the spending cap of $8,000 in 2024.

In the years before that, most individuals who entered the catastrophic phase were still responsible for paying a 5% coinsurance on their medications. In some cases, this coinsurance could result in significant spending despite the protections of catastrophic coverage.

Medicare Part D costs and assistance

Part D costs vary among plans. Depending on the plan, you may have to pay a monthly premium, deductible, copayment, or coinsurance.

If you need help paying for your medications with Part D, you have a few potential options:

• Medicaid: Medicaid is a joint federal and state health insurance program for individuals with low incomes. Consult your local Medicaid office to learn about eligibility for benefits and enrollment.
• Extra Help: Extra Help is a Medicare program for reducing drug costs. If you’re already enrolled in Medicaid or a Medicare savings program, you automatically get Extra Help. Otherwise, you’ll need to meet certain income and resource limits and apply.
• State Pharmaceutical Assistance Programs: These state programs help individuals pay for their premiums or cost-sharing expenditures. Check with your state to learn whether you might qualify for benefits.

Part D plans are offered by private insurance companies as an add-on to Original Medicare (parts A and B) or as part of a Medicare Advantage (Part C) plan. Plans differ in their costs and coverage.

If you know you’ll need certain medications in an upcoming year, you can shop around during open enrollment to find a plan that includes your preferred drugs in its formulary. You may be able to reduce your out-of-pocket costs by enrolling in the right plan.

Summary

Catastrophic coverage is the last stage of coverage under Medicare Part D. In 2025, you enter catastrophic coverage when your out-of-pocket spending on prescription drugs has reached $2,000.