Key takeaways
- After spending $2,000 out-of-pocket on prescription drugs in 2025, Medicare Part D beneficiaries enter the catastrophic coverage phase, where they pay nothing for covered prescriptions for the rest of the year. In 2026, the out-of-pocket maximum is $2,100.
- The monthly Part D premium and the cost of drugs not covered by the plan do not count toward reaching the catastrophic coverage limit.
- State Pharmaceutical Assistance Programs and the Extra Help program can provide financial assistance for Medicare Part D costs, including deductibles, premiums, and coinsurance.
As of January 1, 2025, the Medicare Part D phase, known as the coverage gap or “donut hole,” was eliminated. The donut hole was a phase that occurred when a person’s out-of-pocket costs reached a certain amount. At this time they were responsible for paying a different or higher percentage for their prescription drugs.
In 2025, individuals will automatically enter into the catastrophic coverage phase when they reach the out-of-pocket spending cap.
In this article, learn more about catastrophic coverage, including costs and how to seek financial support.
Glossary of Medicare terms
- Out-of-pocket cost: This is the amount a person must pay for care when Medicare does not pay the total amount or offer coverage. Costs can include deductibles, coinsurance, copayments, and premiums.
- Premium: This is the amount of money someone pays each month for Medicare coverage.
- Deductible: This is an annual amount a person must spend out of pocket within a certain period before Medicare starts to fund their treatments.
- Coinsurance: This is the percentage of treatment costs that a person must self-fund. For Medicare Part B, coinsurance is 20%.
- Copayment: This is a fixed dollar amount a person with insurance pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
Medicare Part D plans have three coverage phases for prescription drugs:
- Deductible: While some Medicare plans do not have a deductible, individuals may have to reach a deductible amount before Medicare will begin paying for their prescriptions. The deductible may vary based on the specific plan. However, in 2025, no plan may have a deductible that is higher than $590.
- Initial coverage: Once a person reaches their plan’s deductible, if it has one, they are then responsible for paying 25% of their prescription drug costs. Individuals will pay this until they reach the out-of-pocket (OOP) spending cap, which is $2,000 in 2025. In 2026, the OOP cap is $2,100.
- Catastrophic coverage: Once a person reaches the spending cap, they enter catastrophic coverage. In this phase, they pay nothing for their prescriptions for the rest of the year.
Costs that do not help a person reach their catastrophic coverage limit include:
- monthly Part D premiums
- cost of non-covered medications
- costs of covered medications from pharmacies outside of a person’s Part D plan
Although Part D plans vary, all provide the same catastrophic coverage. However, the differences in retail medication costs may affect the amount a person pays while in the catastrophic phase.
A person’s Part D plan should keep track of how much money the individual spends out of pocket, and the expenses may appear on the person’s monthly statement.
The catastrophic phase of Part D coverage happens when a person reaches their maximum OOP expenses.
For 2025, the OOP limit is $2,000 out of pocket. That means that they will pay $0 for coinsurance of prescription drugs for the remaining months of the year.
Some programs may provide assistance with costs. Different programs may have varied eligibility requirements, including income and asset limits.
Some programs that provide help and support include:
- State Pharmaceutical Assistance Programs: Individual states administer State Pharmaceutical Programs. For this reason, programs work differently. For instance, some states provide help for people with certain conditions, such as HIV, to pay for their prescription medications.
- Extra Help: The Extra Help program helps people with limited incomes pay for Part D costs, including deductibles, premiums, and coinsurance.
Medicare resources
For more resources to help guide you through the complex world of medical insurance, visit our Medicare hub.
Medicare Part D catastrophic coverage is the phase that occurs after a person meets their maximum OOP expenses. In 2025, that is $2,000. In 2026, it is $2,100.
In the catastrophic coverage phase, individuals will not need to pay for their authorized Part D prescription medications for the remainder of the calendar year.