Catastrophic coverage is the final stage of Medicare Part D coverage. The first stage is the deductible period where the enrollee pays out-of-pocket for covered care until the deductible amount is satisfied, and insurance begins to contribute toward medical costs. The next stage is the initial coverage period (ICP) where the patient pays the standard copayment or coinsurance fee for covered care. Catastrophic Coverage begins after the ICP if the Part D beneficiary’s out-of-pocket costs reach the allowed limit for the plan year. from 2019 indicated nearly 1.5 million Medicare beneficiaries, or roughly 3 percent of total Part D beneficiaries, had out-of-pocket drug costs cross over into Part D’s catastrophic coverage period.
The current threshold of out-of-pocket costs to qualify for catastrophic coverage is about $3,300 for the beneficiary without the Low-Income Subsidy. During the catastrophic coverage period, an enrollee in an insurance plan providing Part D coverage no longer pays out-of-pocket costs for medications covered under the plan’s formulary. Before 2024, Medicare beneficiaries in the catastrophic coverage phase paid 5 percent of covered drug costs with 80 percent of the remainder paid by Medicare and the final 15 percent by the insurer. A beneficiary who has entered the catastrophic coverage phase continues in this phase until the end of the plan year. At the beginning of the new plan year, the beneficiary’s out-of-pocket contributions toward the catastrophic threshold reset to $0 and must reach the catastrophic coverage limit within the new plan year before catastrophic coverage would begin again.
The annual cap on out-of-pocket Part D spending for 2026 and later will be adjusted according to per capita Part D drug costs.
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