Early in my blog writing, I shared information on how Medicare Part D plans worked. For historical sake, see previous blog here: https://www.cdi-cares.com/blog/how-to-decode-your-part-d-plan. That blog detailed the four distinct phases of Medicare Part D, which is the prescription drug coverage. The phases and details pertained to stand alone drug plans in addition to drug plans included in Advantage Plans or Part C. Since that blog was written in 2021, there have been changes in the phases and structure of Medicare Part D. Now is a great time to revisit and see how the coverage and plan design are different from those in the past.
No Donut Hole
Many still remember the term ‘Donut Hole,’ which referred to the Coverage Gap in drug coverage. This meant a gap in coverage in the middle or toward the end of the year, when the drug plan reduced its coverage and the member or beneficiary was responsible for a higher share of the drug's cost. This translated to a sudden spike in drug prices at the pharmacy for routine medications. It often came as a shock, since you were used to paying the same copay for several months, and then it suddenly went up. This applied to higher-cost brand-name drugs in Tiers 3-5. Medicare beneficiaries came to loathe this period of coverage and its term. Medicare tried to soften it by renaming it the Coverage Gap. Here is the good news. Beginning in 2025, due to the IRA, it is no more. The Donut Hole is gone!
Remaining Phases of Coverage
With the Donut Hole or Coverage Gap phase removed, we are now left with three phases of drug coverage. Here they are in detail:
Deductible Phase – This still exists and, in 2026, can be up to $615. The amount can change slightly each year. This has always been the first phase of drug coverage. For high-cost brand-name drugs covered on formulary, you pay this deductible first at the pharmacy. Depending on price, some drugs may hit that in the first fill of the year, or it may take two or three months. The key is to remember this exists, so when January hits, there are no surprises.
Initial Phase – This is still the second phase of coverage. It begins right after you meet the deductible. As the beneficiary, you now pay 25% of the cost of the covered drug. The price also depends on the plan contract with the pharmacy and the drug Tier level. For example, Tier 3 costs more than Tier 2. In this phase, the plan pays 65%, and the manufacturer of the drug pays 10%.
Catastrophic Phase – This used to be the fourth phase after the Donut Hole. It is now the third phase. As of 2026, in this phase you pay $0 for all drugs covered on formulary. You enter this phase once you have reached the maximum out-of-pocket for drug copays of $2100 annually. This maximum out-of-pocket is separate from any medical expenses or max. This cap on drug copay expense is also quite new. In my first blog, you can see the max was much higher. Some clients were paying nearly $8000 per year for drug copays back in 2021. Medicare has come a long way in drug affordability.
M3P
Medicare also created a new program as part of the new drug plan structure. It is called the M3P, or Medicare Prescription Payment Program. This program helps beneficiaries with high initial costs spread payments over the year. The removal of the donut hole was great; however, it shifted some of the high costs to the beginning phase. It is not too common, but some may owe nearly $1000-$2100 at the first fill of a high-Tier drug early in the year. I have had a couple of clients in this situation. We try to prepare for it, and the M3P can be used if needed. Members would enroll through their Part D plan, and the plans usually use a third party to collect the money each month. In this case, nothing is paid at the pharmacy, but you get on a monthly payment plan with the third party.
For more information, check out these reputable resources:
https://www.ncoa.org/article/who-pays-what-for-medicare-part-d-in-2026-a-guide/
https://www.medicare.gov/health-drug-plans/part-d/basics/costs
CDI is here to help you manage your healthcare costs and find the best options for your unique situation. We can meet in person or virtually. Reach out if you would like more information. Email carrie@cdi-cares.com or check out www.cdi-cares.com for a contact page and other helpful blogs.