If you are a senior American with Original Medicare you can enroll for Part D prescription drug coverage. Medicare Part D plans are offered by Medicare-approved private insurers to help cover the cost of prescription drugs, so costs and benefits can vary. However, regardless of provider, all Part D plans are required to have a minimum of two drugs in the most commonly prescribed classes.

Each Medicare Part D plan has a formulary of covered drugs that your plan will pay for. However, depending on your total drug spend in a given year, your Part D coverage is divided into stages known as Medicare Part D phases.

Four prescription drug coverage stages

Medicare Part D is an optional coverage that Medicare beneficiaries can enroll in to help cover the cost of prescription drugs.

To start receiving your Part D benefits, you are required to pay a Medicare Part D premium which is projected to be $55.50 in 2024. After that, what you spend will be defined by what coverage stage you’re in.

Medicare Part D stages include:

·        Stage 1: Deductible stage

·        Stage 2: Initial coverage stage

·        Stage 3: Medicare Part D coverage gap

·        Stage 4: Catastrophic coverage stage

Stage 1: Deductible stage

The first phase of your Part D coverage is the deductible stage. In this phase of your coverage, you pay the full cost of your prescription drugs up to the amount of your deductible. This means that if your plan has a deductible of $400, your plan will only start covering the cost of drugs after you have covered the first $400 in prescription drug costs. It is important to note that your Part D premium does not count toward your deductible.

Most Part D Medicare plans have a deductible but some Part D plans will only have a deductible for certain drug tiers. Part D deductibles can vary depending on your plan provider but the maximum Part D deductible is capped at $505 in 2023 and $545 in 2024.

Stage 2: Initial coverage

The initial coverage is the second of the Medicare Part D coverage phases. This stage starts after you have made payments that are equal to the deductible of your plan. However, if your Part D plan does not have a deductible, the initial coverage phase starts immediately after your plan goes into effect.

During the initial coverage phase, your prescription drug coverage will pay for part of your prescription drug costs for any covered drugs that are included in your plan’s formulary. Your copay during this phase will depend on the tier of drugs. High-tier drugs typically have a higher copay compared to drugs in lower tiers.

Initial coverage limit 2024

The initial coverage phase has total drug spend limits after which your coverage moves to the next phase. Your Part D plan will remain in the initial coverage phase until your prescription drug costs reach $4,660 in 2023 and $5,030 in 2024. This is the initial coverage limit that is set by Medicare but keep in mind that this limit changes from year to year. For instance, the initial coverage limit for 2022 is $4,430.

Once you have reached the initial coverage limit for the year, your Part D coverage will move into the coverage gap phase.

Stage 3: Medicare Part D coverage gap

Stage 3 of the Medicare Part D stages is the coverage gap or donut hole. Note that you will only reach this stage if your prescription drug costs exceed the initial coverage limit ($4,660 in 2023 or $5,030 in 2024). Once you enter this stage, your Part D plan will limit how much of your drug costs are covered.

In this phase, you will be required to pay 25% of the cost for covered drugs (both brand-name drugs and generic drugs). Your plan will cover 5% of the cost, the manufacturer pays 70% and the remaining 25% is covered by you as the beneficiary.

The coverage gap phase of your Medicare Part D coverage will end once your total out-of-pocket costs reach $7,400 in 2023 or $8,000 in 2024. The following costs will count as part of your total out-of-pocket costs:

·        Your yearly deductible;

·        Your coinsurance and copayments from the entire plan year;

·        What you paid for drugs in the coverage gap.

Once your out-of-pocket costs reach $7,400 in 2023 or $8,000 in 2024, you exit the coverage gap or donut hole and enter the catastrophic coverage stage.

Note: Medicare beneficiaries who are eligible for Extra Help do not have a coverage gap.

Stage 4: Catastrophic coverage stage

The final stage of Medicare Part D stages is the catastrophic stage. You will enter this coverage once your total out-of-pocket costs for a given benefit year exceed $7,400 in 2023 or 8,000 in 2024. During the catastrophic coverage stage, you are only required to pay a small copay or coinsurance for covered drugs.

In the catastrophic stage, you will pay approximately 5% coinsurance or copayment with Medicare paying for the bulk, up to 95%, of your prescription drug costs. This phase of your coverage will last until the end of the benefit year.

Once the new plan year begins, you will go back to the deductible phase of your Part D coverage.

Changes to Part D under the Inflation Reduction Act

The Inflation Reduction Act has provisions aimed at lowering how much Medicare beneficiaries spend on prescription drugs. This means that changes will be implemented in Medicare Part D plans starting in 2023. Some of the provisions include:

·        The Secretary of the Department of Health and Human Services is authorized to negotiate the cost of some Medicare-covered drugs. (Available from 2026 for 10 Part D drugs).

·        Drug manufacturers are required to pay a rebate to the federal government if covered drugs under Medicare Part D and Part B increase faster than the rate of inflation. ( starts October 2022 to September 2023)

·        A hard cap is added to out-of-pocket costs under Part D by eliminating the 5% coinsurance requirement for catastrophic coverage in 2024. Out-of-pocket costs will be capped at $2,000 in 2025.

·        The cost of insulin products is limited to $35 per month in all Part D plans and all covered adult vaccines will be available for free from 2023.

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Article updated on November 1, 2023.