VIDEO: How Medicare Part D Works (2024)
Probably the most confusing part of Medicare is Part D prescription drug coverage. But that is changing in 2024 and 2025. Understanding Part D will be much easier now.
That’s because there will be a cap on prescription drugs in 2024 (about $3,300)! *
And in 2025, the cap will be $2,000 (plus there will be no donut hole)!
Watch our video to the right, or read below.
* NOTE: The estimated cap in 2024 drug copays is about $3,300...BUT...it could be higher or lower, depending on your mixture of medications.
Let’s Review Each Of The 4 Phases. As You Read The Descriptions, Reference The Visual Above...
Deductible
This is the period where you must pay a certain amount of prescription costs before your Part D plan kicks in. The maximum deductible a Part D plan can have is announced each year by Medicare. In 2024, the maximum deductible is $545. That doesn’t mean it’s the maximum you’ll pay all year, rather it’s what you owe initially before your plan begins to help pay a portion of your drug costs. Some Part D plans have the full $545 deductible, some have a lower deductible, some don’t have a deductible at all. It just can’t be higher than $545 in 2024.
Initial Coverage
Assuming your medications are on your plan’s formulary list of drugs, this is when your Part D plan begins to pay the bulk of a drug’s cost (as high as 75% or more). It’s “Tier-based” pricing. Typically, generic drugs are Tier 1 or Tier 2...and then, brand name drugs are Tier 3, Tier 4, and specialty drugs are Tier 5. You will pay tier-based pricing until you reach the Coverage Gap (Donut Hole), which is when total “gross” drug costs reach $5,030 in 2024. Gross drug costs are what you pay, plus what your plan paid on your behalf.
Coverage Gap (Donut Hole)
Once your gross drug costs reach $5,030…you will enter the Coverage Gap (a.k.a. Donut Hole). This is where you will pay 25% of a drug’s full retail “gross” cost. For some drugs (like generics), the cost might not change much. For other drugs (like brand names and specialty), the cost could go up substantially because you’re now paying 25% of the full gross cost. It’s like this until you reach $8,000 of True Out-of-Pocket Costs (TrOOP).
NOTE: You only pay a portion of the $8,000 TrOOP. See below…
Catastrophic
When your TrOOP costs reach $8,000, you will pay $0 the rest of the year for covered drugs on your plans formulary list of drugs.
TrOOP is a combination of:
Your costs in the Deductible phase
Your costs in the Initial Coverage phase
Your costs in the Coverage Gap (Donut Hole) phase
70% of the brand name cost in the Coverage Gap (Donut Hole) phase, which the manufacturer pays
In the end, your portion of the $8,000 TrOOP will be no more than about $3,300.
If You Take Insulin…
The Part D Senior Savings Model has basically been expanded and strengthened by the passage of the Inflation Reduction Act of 2022.
Since 2023, here’s how it works…
Approved insulins are now limited to a $35 max copay for a 30-day supply until you reach the Catastrophic phase, where it drops to $0 copay.
The insulin needs to be covered on the plan’s formulary list of drugs.
If you take insulin through an insulin pump, the same rules apply…a $35 max copay for a 30-day supply. The only difference is this will be run through your Part B medical insurance, rather than Part D drug coverage.
A Peak into 2025 and beyond
In 2025, there will be a $2,000 cap on drug costs!
Additionally, the Coverage Gap/Donut Hole will be gone…for real this time.
Only the Deductible and Initial Coverage phases will be relevant starting in 2025. Very good news!
Watch this video for more details on how Part D is transforming over the next several years.
Reference Links
www.medicare.gov
Changes to Medicare Part D in 2024 and 2025 (Kaiser Family Foundation)
Medicare Part D Deductible
Costs After the Deductible
Costs in the Coverage Gap
Costs in the Catastrophic Phase
Part D Senior Savings Model
Inflation Reduction Act of 2022
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