catastrophic coverage (Part D)

What is Medicare Part D catastrophic coverage?

Catastrophic coverage is the phase of Medicare Part D coverage during which an enrollee’s covered drugs no longer have any out-of-pocket costs for the remainder of the year. Instead, the costs are paid by the drug manufacturer, Medicare, and the Part D plan.¹

The elimination of out-of-pocket costs during the catastrophic coverage phase took effect in 2024, due to the Inflation Reduction Act. And that law further limited Part D out-of-pocket costs starting in 2025. Before 2024, enrollees had unlimited out-of-pocket costs during the Part D catastrophic coverage phase.

What are the phases of Medicare Part D coverage?

Historically, there were four phases of Part D coverage: The deductible phase, the initial coverage phase, the coverage gap (donut hole) phase, and the catastrophic coverage phase.² But starting in 2025, the coverage gap phase was eliminated, due to the Inflation Reduction Act. And out-of-pocket costs have been simplified and reduced. Here’s how the Part D coverage phases work in 2026:³

• Deductible phase. If the plan has a deductible, the enrollee is responsible for paying it before any benefits kick in, other than the plan-negotiated rate for the drugs (a plan might have some drugs subject to the deductible while others are not; specific details vary by plan). The maximum deductible is $615 in 2026;⁴ some plans have lower deductibles or no deductibles.
• Initial coverage phase. This starts after the deductible has been met, and continues until the enrollee’s total out-of-pocket costs reach $2,100 in 2026⁴ (this cap is indexed annually; it was $2,000 in 2025). During the initial coverage phase, the enrollee will pay no more than 25% of the cost of their medications (some plans have copays that amount to less than 25% of the cost). The drug plan pays most of the cost, and the drug manufacturer picks up 10%.⁵
• Catastrophic coverage phase. This phase begins if and when the enrollee’s total out-of-pocket costs (for drugs covered by their Part D plan) reach $2,100 in 2026. For the remainder of the year, the enrollee will have no out-of-pocket costs for drugs covered by their Part D plan. The cost of their medications will instead be paid by their Part D plan, Medicare, and the drug manufacturers.⁶