4 Medicare Drug Plans Coverage Periods

If your new to Medicare Part D and are unfamiliar with the Medicare Prescription Drug Plan coverage levels, it is important to know that there are four coverage levels you can fall into based on your drug spending throughout the year. The donut hole is the third of four payments stages in the prescription drug coverage for Medicare Part D. According to Medicare.gov, the four payment stages are:

Deductible Stage: You may pay 100% of your prescription drugs costs until your annual deduction is made. This can vary with each plan, and the amount you pay for each drug is impacted based on the tier level of the medication. The maximum Part D deductible in 2021 is $445, which is an increase from the maximum of $435 in 2020. Once you meet your yearly drug deductible, you enter the initial coverage stage.


Initial Coverage Stage: With initial coverage, you’ll pay a co-payment or a form of coinsurance for each of your medications. The amount of your copay/coinsurance is dependent on the prescription drug plan’s formulary and medication tiers. If your plan and you spend a certain combined specific amount, $4,130 in 2021, you’ll reach this limit and enter the donut hole.


“Donut Hole” or Coverage Gap Stage: In 2020, the donut hole has officially been closed. If you do go over your initial coverage limit, you’ll still enter this phase, but you’ll pay no more than 25% of the cost of your prescription drugs that are covered by your plan. This means that if the total drug cost between you and your insurance company exceeds $4,130 in 2021, you will now have to pay up to 25% coinsurance on your generic and brand name medications.


Catastrophic Coverage Stage: By spending more than $6,550 in 2021, an increase from the 2020 amount of $6,350, you’ll enter the catastrophic coverage stage. For the remaining part of this year, you’ll pay a small amount for each drug covered on your plan. Only about 4% of people will make it to the catastrophic coverage stage each year.

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