the coverage gap or donut hole is the third stage of Medicare Part D coverage

What Are the Four Coverage Phases of Medicare Part D?

Medicare Part D is also known as your prescription drug coverage plan. You can enroll in a Medicare Part D plan in two different ways: by enrolling in a stand-alone plan because you have Original Medicare or by enrolling in a Medicare Advantage plan that includes prescription drug coverage (known as an MAPD). The price of your prescriptions may fluctuate throughout the year, and the reason depends on which phase of your Medicare Part D plan you are currently in. There are four phases: 

  1. Deductible period
  2. Initial coverage period
  3. Coverage gap
  4. Catastrophic coverage

Phase 1: The Deductible Period

Deductibles for Medicare Part D plans differ from plan to plan, with some having a high deductible and others having no deductible at all. As of 2021, your deductible cannot exceed $445. You’re responsible for paying the full price of your prescription drugs until your deductible is met. If your plan has a $0 deductible, you’ll head straight into Phase Two.

Phase 2: Initial Coverage Period

Phase two begins once your deductible has been met. It will take effect immediately if your plan has a $0 deductible. Your plan will now help cover part of the cost of your prescription medication. You’re still responsible for copayments or coinsurance. A copayment is a set amount you’re required to pay for each medical service you receive. Coinsurance is the portion of the cost of care you must pay after your health insurance pays. It’s typically a percentage of an approved amount. The amount you’re responsible for depends on the tier your drug is in. The length of your initial coverage period depends on what tier your medication is assigned to and your Medicare Part D plan’s benefits structure. 

As of 2021, most initial coverage periods end when you have accumulated $4,130 in total drug costs. Note that the amount your plan covers and the amount you pay will apply to your total drug cost amount. 

Phase 3: Coverage Gap 

Once you have reached your limits in the initial coverage phase, you enter the coverage gap, also referred to as the “donut hole.” Not everyone will enter this gap, but if you do, you’re responsible for 25% of the cost of all your prescription medications. For you to get out of the coverage gap and enter into catastrophic coverage, your out-of-pocket costs for prescription medication must reach $6,550. This amount is the same for all Medicare Part D plans, and it consists of the amount that you paid for your prescription drugs, as well as some costs that others paid as well. 

Phase 4: Catastrophic Coverage

Once you reach $6,550 in out-of-pocket costs, you enter into catastrophic coverage.

Your out-of-pocket costs are determined by five components:

  1. Your deductible
  2. What you paid during the Initial Coverage Period 
  3. The amount paid by you and the manufacturer for your prescriptions
  4. Amounts paid on your behalf
  5. Amounts paid by the State Pharmaceutical Assistance Programs (SPAPs), AIDS Drug Assistance Programs, and the Indian Health Service

In the Catastrophic Coverage phase, you’ll be responsible for low coinsurance or low copayments that Medicare sets for all covered prescription medications. This means that your plan and the government pay the rest, which equals about 95% of the cost.

Choose Medicare Sharks For Your Medicare Needs

Our devoted team of Medicare experts is here to ensure you get the Part D prescription drug coverage you deserve! For more information about Medicare Part D and what you can expect from one of these plans, contact Medicare Sharks today.