Medicare Part D (Prescription Coverage)

Annual Deductible
You pay the full cost of your prescription until your spending adds up to the amount of your deductible. So, if your plan has a $0 deductible, you skip straight to the next stage. Keep in mind that some deductibles may only apply to specific tiers. Any payments for your monthly premium or for medications on tiers that do not apply to the deductible are not counted towards the deductible.

Initial Coverage
Your plan pays for a portion of each prescription drug you purchase, as long as that medication is covered under the plan’s formulary (list of covered drugs). You pay the other portion, which is either a copay or coinsurance. The amount you pay will depend on the tier of that specific drug. This stage ends when the amount spent by you and your plan on your covered drugs adds up to equal the initial coverage limit set by Medicare for that year. In 2023 that limit is $4,660.

Coverage Gap “Donut Hole”
Not everyone will enter the coverage gap. In the coverage gap, the plan is temporarily limited in how much it can pay for your drugs. If you do enter the gap, you’ll pay 25% of the plan’s cost for covered brand-name drugs and 25% of the plan’s cost for covered generic drugs. You exit the coverage gap when your total out-of-pocket cost is actually calculated by adding together all of the following: yearly deductible, coinsurance and copayments from the entire plan year and what you paid for drugs in the coverage gap (including the discounted amounts you didn’t pay in that stage).

Catastrophic Coverage
After your out-of-pocket cost totals $7,400, you exit the coverage gap and enter the catastrophic stage. In the catastrophic stage, you will pay a low coinsurance or copayment amount (which is set by Medicare) for all of your covered prescription drugs. That means the plan and the government pay for the rest. Roughly 95% of the cost. You will remain in this phase until the end of the plan year.