Catastrophic coverage refers to the point when your total prescription drug costs for a calendar year have reached a set maximum level ($6,550 in 2021, up from $6,350 in 2020). At this point, you are out of the prescription drug “donut hole” and your prescription drug coverage begins paying for most of your drug expenses.
Once you’ve reached the catastrophic coverage threshold in 2021, you’ll pay $3.70 for generic drugs and $9.20 for brand-name drugs, or 5 percent of the total drug cost, whichever is higher (the dollar amounts are adjusted for inflation each year).
But unlike most other types of health coverage, there is no out-of-pocket cap for Part D coverage (this is also the case with Original Medicare, which is why most enrollees have some form of supplemental coverage). So although out-of-pocket costs drop to a much lower level once you hit the catastrophic threshold, they don’t drop to zero. And if you’re taking an expensive medication, even 5 percent of the cost can continue to add up to a significant amount of spending each month.