Part D catastrophic coverage
In 2023, when a beneficiary’s out-of-pocket spending for prescription drugs reaches $7,400, they reach the Part D catastrophic coverage level. If this happens, the beneficiary pays 5% co-insurance for prescriptions covered by Medicare Part D for the rest of the year.
2024 catastrophic cost change
On January 1, 2024, the 5% co-insurance payment in the catastrophic phase will end. Beneficiaries who reach $8,000 in out-of-pocket spending on Part D prescriptions in 2024 will automatically receive catastrophic coverage. Medicare Part D plan provider will have to pay 20% of the total drug cost instead of the 15% they paid in the past. Once beneficiaries reach this level, they no longer have to pay either copayments or co-insurance for covered Part D prescriptions for the remaining part of the year.
Learn more about Medicare Part D plans
This updated rule applies to Part D enrollees who do not have an LIS (low-income subsidy). When a Beneficiary reaches the catastrophic level in Part D coverage. they no longer pay 5% of their prescription costs. In other words, there is a cap on Part D out-of-pocket spending for enrollees in 2024. the catastrophic threshold is $8,000.
How the catastrophic limit is calculated
The catastrophic limit includes the prescription costs paid out-of-pocket by Part D enrollees, as well as the value of the manufacturers price discount on brands of medications in the coverage gap phase. In 2024, a Part D enrollee who uses only brand-name drugs and spends about $3,250 out-of-pocket pays no additional amount for their prescriptions. The remaining part of the $8,000 catastrophic limit is taken from the manufacturer’s price discount for the medications.
What this means for beneficiaries
For beneficiaries who do not qualify for LIS and require expensive medications to maintain their health, annual out-of-pocket costs can be as high as $15,000 annually. This cost applies to individuals who may take some lifesaving cancer medications. This cost on top of fighting for their lives adds a terrible amount of stress for them. Once a beneficiary reaches the catastrophic phase, eliminating the 5% coinsurance in 2024 means that Part D enrollees who require high-cost medications covered by Part D can save thousands of dollars.
Click here to watch a quick video about the Part D changes
Changes in costs for Part D plan providers
Due to the end of the beneficiaries required 5% coinsurance payment in the catastrophic coverage phase, Part D plans will have to pay 20% of total drug costs during the catastrophic phase in 2024. This is 5% over the 15% they currently pay in 2023 and in previous years.
Changes for 2025
CMS is putting a hard cap of $2,000 on out-of-pocket, prescription drug spending in 2025. They will also end the coverage gap phase (donut hole). Part D plans will have a greater responsibility for prescriptions in the catastrophic phase and more manufacturer price discounts will be added. These measures will reduce the liability for Medicare in this phase of coverage. There will be changes to Part D plan costs as well as manufacturer price discounts in the initial phase of Part D coverage.
Please note: the drug cap does not apply to out-of-pocket costs for Part B prescription drugs.