Medicare Part D is a Medicare program that offers prescription drug coverage to Medicare beneficiaries through private health insurance companies sponsored by Medicare. Part D operates a little differently from traditional prescription drug coverage you may have had through an employer or an individual major medical plan prior to Medicare eligibility. The plan will have its own premium, deductible, copays/coinsurance, and out-of-pocket maximum.

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Part D has four stages in a calendar year. They are as follows:

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Stage 1 - Deductible: During the deductible stage, the policyholder is responsible for 100% of the costs of medications. The largest deductible a plan may have in 2022 is $480. Keep in mind, not all Part D plans have a deductible. Some plans only have a deductible on higher tier medications.

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Stage 2 - Initial Coverage Level (ICL): Once you meet your deductible, you enter the initial coverage level stage. This is when your copays and coinsurance "kick in." Plans designate what prescriptions they cover and what tier they belong to in the formulary. Each tier has its own copay or coinsurance. The copay/coinsurance is considered your share of the cost and the insurance company pays for the remaining amount. 

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Stage 3 - Coverage Gap "Donut Hole": Once the total cost of what you have paid and what the insurance company has paid reaches $4,430, for 2022, you enter the coverage gap stage (also known as the donut hole). During this stage the plan will temporarily limit the coverage on medications. You will leave the coverage gap when you have spent $6,350 for 2020, on medications during the calendar year. Keep in mind, not all people will reach the donut hole. Only when you and the insurance company combined have hit the initial coverage limit ($4,430 in 2022).

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Stage 4 - Catastrophic Coverage: If you do enter the donut hole and your personal total expenses for covered medications reaches $7,050 for 2022, you will exit the donut hole and enter catastrophic coverage. During this stage you will pay small copays for brand and generic medications.