Deductible period: When you start using your prescription drug coverage, you’ll first need to meet your plan’s annual prescription deductible, if there is one.

Initial coverage period: Then, you’ll pay a copay or coinsurance for each prescription until you and your plan’s spending on prescriptions reaches the initial coverage limit.

Coverage gap: After the initial coverage limit is met, you enter the coverage gap, also known as the donut hole. You’ll pay 25% of your plan’s negotiated price for generic and brand-name drugs until your spending on prescription drugs reaches the total out-of-pocket threshold.

In 2025, as part of the Inflation Reduction Act, the coverage gap (donut hole) phase will no longer apply. Instead, there will be a lower $2,000 out-of-pocket maximum. As a result, Medicare Part D prescription drug coverage will have three phases: deductible, initial coverage and catastrophic.

Catastrophic coverage: Once the out-of-pocket threshold is met, you enter catastrophic coverage, and you’ll pay nothing for your covered drugs for the rest of the year. Your plan pays the rest.