Medicare Part D Catastrophic Phase: What Does It Cover, and How Much Does It Cost?
Key takeaways:
Your out-of-pocket costs for Medicare Part D depend on how much you spend on covered medications. The last phase is catastrophic coverage. In 2025, that phase begins when you reach the $2,000 out-of-pocket threshold. After that point, you don’t have to pay anything for covered prescriptions for the rest of the year.
In 2025, you can use the new Medicare Prescription Payment Plan to manage your costs. This lets you spread the cost of prescription medications over the year instead of paying up front at the pharmacy.
You may be able to lower your out-of-pocket costs by shopping for the right Medicare Part D coverage. This will help you avoid reaching the catastrophic phase.
Table of contents
Medicare Part D plans cover prescription medications, vaccines, and certain medical supplies. Because original Medicare (Part A and Part B) doesn’t cover prescription medications, enrollees need to buy a stand-alone Part D plan. The same goes for anyone who has a Medicare Advantage (MA) plan that doesn’t include prescription medication coverage.
Your out-of-pocket costs for Medicare Part D depend on how much you spend on covered medications. In 2025, after meeting your deductible (if you have one), you pay copays and coinsurance for prescription costs until you spend $2,000 out of pocket. At that point you enter the catastrophic coverage phase — and pay nothing for covered prescriptions for the rest of the year. The coverage gap known as the “donut hole” is eliminated in 2025.
What is Part D catastrophic coverage?
Catastrophic coverage is the last phase of Medicare Part D prescription benefits. In this phase, you have no out-of-pocket costs for covered medications.
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In 2024, the catastrophic phase is preceded by the donut hole phase. In this coverage gap, you have an $8,000 out-of-pocket threshold before the catastrophic phase.
Starting January 1, 2025, the catastrophic phase begins when you have spent $2,000 in out-of-pocket costs on covered medications.
What isn’t covered in the catastrophic phase?
Medications not listed in your plan’s formulary will not be covered in the catastrophic phase.
What will Part D costs look like in 2025?
Part D collapses to three phases in 2025.
Deductible phase: Enrollees pay all prescription medication costs until they meet the Part D deductible. In 2025, that amount can’t exceed $590. (Some plans have a lower deductible or no deductible.)
Initial coverage phase: Enrollees pay copays and coinsurance for covered prescriptions until reaching the out-of-pocket cap. That amount is $2,000 in 2025, and it will be adjusted annually based on inflation. Assistance from programs such as Extra Help will count toward your out-of-pocket limit. Manufacturer discounts will no longer be calculated into your out-of-pocket spending.
Catastrophic coverage phase: Enrollees have no cost sharing for covered Part D medications.
Your plan will reset to the deductible phase on January 1, 2026.
Change your Part D plan: If your Medicare prescription plan doesn’t include the medications you need, you can switch your coverage during Medicare open enrollment from October 15 to December 7 annually and during the first 3 months of the year if you have Medicare Advantage.
Donut hole eliminated: The new Medicare Part D $2,000 out-of-pocket limit begins in 2025, and the coverage gap known as the donut hole ends December 31, 2024.
Medicare prescription payment plans: Starting January 1, 2025, anyone with a Medicare prescription plan will have the option to make payments for out-of-pocket medication costs instead of paying up front at the pharmacy.
What to know about Part D medication coverage
Part D plans create their own formularies, or lists of medications they cover. But the government sets some ground rules. Generally, Part D plans must cover at least two medications in each therapeutic class. They must cover all medications in six protected categories, including antidepressants, antipsychotics, and immunosuppressants.
Is there an out-of-pocket maximum for Part D?
Medicare Part D out-of-pocket costs were capped at $8,000 in 2024. In 2025, the most you’ll spend on your Part D covered medications is $2,000.
What can you do to manage your Part D costs?
Medicare Prescription Payment Plan
Starting in 2025, anyone with a Medicare prescription plan does not have to pay up front at the pharmacy. Enrollees will have the option to make payments for their out-of-pocket medication costs. With the new Medicare Prescription Payment Plan, you can be billed for your portion of covered medication costs. These expenses can be spread out across the year. This Medicare program can help you manage your out-of-pocket costs. But it won’t save you money or reduce your medication prices. You can use the payment program if you have a stand-alone Part D plan or prescription coverage included in an MA plan.
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More tips for managing costs and saving on your medications
Here are some other tips for managing your Part D costs:
Check the prices for your medications at pharmacies in your area. Sometimes going to a pharmacy that’s in your Part D plan’s network can mean lower prices for your medications. Use GoodRx to compare prices and look for coupons that could help you save on your medications. Switching to a mail-order pharmacy also might cut your costs.
Review your prescription plan’s formulary. Check your plan’s formulary during Medicare’s annual open enrollment, from October 15 to December 7. This is when you’re able to change plans for the next year. It’s a good idea to review your formulary throughout the year to see if there have been changes. If you have an MA plan, you can change your Part D coverage during MA open enrollment (January 1 to March 31).
Contact your State Health Insurance Assistance Program (SHIP). SHIP is part of a nonprofit network of trained counselors who provide free guidance on Medicare issues. A SHIP counselor can help you with Part D questions.
Appeal changes. Your plan might stop including your medication on its formulary. It may require you to try an alternative medication. Or it may decline to cover a medication you need. You can dispute these decisions through the Medicare appeals process.
See if you qualify for Medicare Extra Help. With Extra Help, Medicare provides financial assistance for Part D costs for people with lower incomes.
Find out if you qualify for Medicaid. Medicaid is a public health insurance program operated by all states, Washington, D.C., and five U.S. territories. Learn about the benefits offered by your state and whether you qualify for Medicaid. You can qualify for Medicare and Medicaid at the same time. This is called dual eligibility.
Check pharmaceutical assistance programs. Look up your medications on Medicare’s assistance program finder to see if manufacturers have help available to you.
The bottom line
If you’re covered by a Medicare Part D plan, your out-of-pocket responsibilities depend on the cost of your covered prescriptions. In 2025, you enter the catastrophic phase after $2,000 in out-of-pocket spending.
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References
Cubanski, J. (2024). A current snapshot of the Medicare Part D prescription drug benefit.
Medicaid.gov. (n.d.). Prescription drugs. Centers for Medicare & Medicaid Services.
Medicare.gov. (n.d.) Find a pharmaceutical assistance program for the drugs you take. Centers for Medicare & Medicaid Services.
Medicare.gov. (n.d.). Help with drug costs. Centers for Medicare & Medicaid Services.
Medicare.gov. (n.d.). What Medicare Part D drug plans cover. Centers for Medicare & Medicaid Services.
Medicare.gov. (n.d.). What’s the Medicare Prescription Payment Plan? Centers for Medicare & Medicaid Services.
Medicare.gov. (n.d.). Yearly deductible for drug plans. Centers for Medicare & Medicaid Services.
Sayed, B. A., et al. (2024). Medicare Part D enrollee out-of-pocket spending: Recent trends and projected impacts of the Inflation Reduction Act. U.S. Department of Health and Human Services.
U.S. Social Security Administration. (n.d.). Apply for Medicare Part D Extra Help program.
