Annual costs of Medicare
prescription drugs.

Phase 1: Deductible

Phase 1: Deductible Phase
Each year you pay a certain amount out-of-pocket toward your deductible before the prescription drug plan kicks in. This amount will vary by plan.

Phase 2:
Initial Coverage Phase

Phase 2: Initial Coverage Phase
After you’ve reached your deductible, you will start sharing the cost of the medications with your Part D plan. Once you and your prescription plan have collectively spent $3,750 in 2018 for covered drugs, you fall into the “Donut Hole.”

Phase 3:
The Donut Hole

Phase 3: The Donut Hole
During this phase you pay a higher percentage of your medication costs. The good news is that this has decreased a lot in 2019. On average you will pay 25% of the cost of their drugs (after meeting the deductible).

To get out of the Donut Hole you need to spend $5,000 on medications. These things go towards the $5,000:

  • Your deductible

  • What you paid during the initial coverage period

  • Almost the full cost of brand-name drugs (including the manufacturer’s discount) purchased during the Donut Hole

  • Amounts paid by others, including family members, most charities, and other persons on your behalf

  • Amounts paid by State Pharmaceutical Assistance Programs (SPAPs), AIDS Drug Assistance Programs, and the Indian Health Service

Costs that do not help you reach catastrophic coverage include monthly premiums, the cost of non-covered drugs, the cost of covered drugs from pharmacies outside of your plan’s network, and the 56% generic discount.

Your Part D plan should keep track of how much money you have spent out-of-pocket for covered drugs and your progression through coverage periods. This information should appear in your monthly statements.

Phase 4:
Catastrophic Phase

Phase 4: Catastrophic Phase
In all Part D plans, after you have paid $5,000 in 2018 in out-of-pocket costs for covered drugs, (this amount is just the amount you have paid, not the total drug costs that you and your plan have paid) you leave the Donut Hole and reach catastrophic coverage. During catastrophic coverage, you will pay 5% of the cost for each of your drugs, or $3.35 for generics and $8.35 for brand-name drugs (whichever is greater).