All part D drug plans have four phases. Each phase offers a different cost sharing structure and starts when a specific dollar limit is met. These phases are the Deductible period, Initial Coverage period, Coverage Gap period, and Catastrophic Coverage Period.[1][2]

  1. First you meet your deductible in the deductible period (your deductible differs by plan, but can’t be more than $435 in 2020). During this phase you will generally have to pay the full cost of perception drugs.
  2. Next, you enter the initial coverage period and have to meet your Initial Coverage Limit (no more than $4,020 for 2020). During this phase your plan will start to pay some of the costs, sharing some of the costs with you. In this phase you’ll pay either copays or coinsurance on drugs.
  3. After you meet your initial coverage limit, you enter the coverage gap period. During this phase you are responsible for 25% of your drug costs (this number is lowered every year until it reduced to zero due to changes to the ‘donut hole’ under the Affordable Care Act). NOTE: Some Medicare Advantage with drug coverage and Medicare drug plans plans don’t have a coverage gap period. Instead they go directly from the initial coverage period to the catastrophic coverage period.
  4. And then finally, if you meet a type of Part D maximum called the catastrophic coverage threshold ($6,350 in 2020), you enter a catastrophic coverage period. During this phase your costs are as low as they can get for the rest of the year.

During each period your cost on perspective drugs lowers as the insurer takes on more of the costs. Meanwhile, as you spend money on drugs in each phase, you get closer to meeting the dollar limit for that phase.

NOTE: While most spending on drugs counts toward threshold limits, your premium, non-covered drugs, drugs from pharmacies not covered under the plans network, and the 75% discount on generics in the coverage gap do not.

NOTE: Each Part D plan may offer unique versions of the above. For example, not every Part D plan has a Coverage Gap period.

Citations

  1. Costs in the coverage gap. Medicare.gov.
  2. Phases of Part D coverage. MedicareInteractive.org.