What is Medicare Part D’s Catastrophic Coverage?

Catastrophic coverage is the last stage of Medicare Part D drug coverage. The good news is that it now works in your favor. Since 2025, once your out-of-pocket drug costs reach the yearly cap, you pay $0 for covered drugs for the rest of the year. Here is how it works in 2026 and 2027, and what changed.

What Is Catastrophic Coverage in Medicare Part D?

Part D coverage now has three stages each year:

• Deductible: You pay the full cost of your drugs until you meet your plan’s deductible. Some plans have no deductible.
• Initial coverage: You pay a copay or coinsurance, up to 25% of the cost under the standard benefit, until your out-of-pocket spending reaches the yearly cap.
• Catastrophic coverage: You pay $0 for covered drugs for the rest of the calendar year.

Source: CMS Part D redesign program parameters for 2026 and 2027.

What Counts Toward the Out-of-Pocket Cap?

Your deductible, copays and coinsurance for drugs your plan covers all count. Payments made for you by Extra Help, most charities, AIDS drug assistance programs and the Indian Health Service count too. Your monthly premiums do not count, and neither do drugs your plan does not cover or the $50 copay in the Medicare GLP-1 Bridge program.

What Changed?

For years, people who reached catastrophic coverage still paid about 5% of their drug costs, with no yearly limit. For someone on an expensive cancer or specialty drug, that could mean thousands of dollars a year. The Inflation Reduction Act changed that. In 2024, the 5% coinsurance in catastrophic coverage went away. In 2025, Part D got a hard out-of-pocket cap, and the coverage gap, or donut hole, ended. The cap is adjusted every year, which is why it rises from $2,100 in 2026 to $2,400 in 2027.

Can You Spread Out Your Costs?

Yes. If you take an expensive drug, you might hit the cap in January or February. The Medicare Prescription Payment Plan lets you pay your out-of-pocket drug costs in monthly amounts across the year instead of all at once at the pharmacy. It is free to join, and you sign up through your Part D or Medicare Advantage plan.

Does This Apply to Medicare Advantage?

Yes. If your Medicare Advantage plan includes drug coverage, the same Part D cap applies. Your plan’s drug costs count toward the Part D cap, which is separate from your Medicare Advantage out-of-pocket limit for medical care.

How to Keep Your Drug Costs Down

Reaching the cap still means paying up to $2,400 in 2027. These steps can help you pay less before you get there.

Check the Formulary

Each drug plan includes a formulary, or in plain English, a list of drugs that are covered under the policy. As you choose between and among Medicare Part D plans or Medicare Advantage plans, it’s important to make sure that the medicines you need will be covered. Otherwise, you pay full price for your medicine.

Always check formularies every year during your open enrollment period. Even if you are happy with your coverage and want to stay with the same plan, you may find your insurer has changed the formulary. It may be that medicines you need are no longer covered. Or you may need a new medicine that isn’t part of your plan. Checking formularies is one of the ways to compare Part D and Medicare Advantage plans available in your area.

If you are eligible for dual enrollment in both Medicare and Medicaid, or if you have certain chronic conditions, ask an agent about Medicare Advantage dual eligible special needs plans (D-SNP). Depending on your health issues, you may find you have broader coverage of prescriptions under these plans.

Talk to Your Doctor About Drug Prices

Let your healthcare provider know you have Medicare Part D and you are wondering about your long-term out-of-pocket drug costs. Your doctor may be able to suggest a generic with a low copayment to help you keep costs under control.

If you need to stick with a brand name medicine, your doctor may know of discount offers and coupons that can help manage the price.

Get Help with Expensive Specialty Drugs

Check manufacturers’ websites to see whether discounts are available.

Use the Right Pharmacies

A network pharmacy has a contract with a Medicare drug plan. If you go to a pharmacy that isn’t in-network, your plan might not cover your drugs.

Find out whether your plan has preferred pharmacies. You will probably pay less at a preferred pharmacy because it has agreed to charge plan members a lower price.