The Centers for Medicare & Medicaid Services (CMS) has projected the 2027 Medicare Part D catastrophic threshold at $2,400, up from $2,100 in 2026, based on figures published in the CY 2027 Medicare Advantage and Part D Advance Notice released January 26, 2026. That number is not yet final. CMS confirms the official 2027 Part D parameters through a separate bid and payment process that typically wraps up in late summer 2026, with plan-specific figures landing in the Annual Notice of Change (ANOC) letters mailed to enrollees by September 30, 2026, ahead of the Medicare Annual Enrollment Period that runs October 15 to December 7, 2026.
This article walks through what the catastrophic threshold actually is under the post-Inflation Reduction Act (IRA) Part D redesign, how the projected $2,400 figure for 2027 was calculated, why it should not be confused with the annual out-of-pocket cap (because under the new rules, they are the same number), and what the projection means for anyone managing prescription drug costs on Medicare right now.
What the catastrophic threshold means since the 2025 redesign
Before 2025, Medicare Part D had a genuinely confusing structure. There was an Initial Coverage Limit that measured total drug spending, a coverage gap ("donut hole") in between, and then a separate catastrophic coverage trigger measured in True Out-of-Pocket (TrOOP) costs. In 2024, the total drug spending figure tied to catastrophic coverage was $8,000, but because manufacturer discounts in the coverage gap counted toward TrOOP, an enrollee's actual out-of-pocket spending to reach catastrophic coverage was closer to $3,300 to $3,500 depending on drug mix.
The Inflation Reduction Act eliminated that entire structure starting in 2025. There is no more coverage gap. There is no more separate TrOOP calculation running alongside a total-spending number. Under the redesigned benefit, a Part D enrollee moves through exactly three phases in a calendar year:
- Deductible phase. The enrollee pays 100% of drug costs, up to the annual deductible cap.
- Initial coverage phase. The enrollee pays 25% coinsurance (with some variation for generics versus brand-name drugs) until their out-of-pocket spending for the year reaches the annual cap.
- Catastrophic phase. The enrollee pays $0 for covered Part D drugs for the rest of the calendar year.
Here is the part that causes confusion online: since 2025, the "annual out-of-pocket cap" and the "catastrophic threshold" refer to the exact same dollar figure. They are not two different numbers anymore. Reaching the annual out-of-pocket cap is what triggers the catastrophic phase. Some older articles written before the redesign, or articles that carelessly reuse pre-2025 terminology, still describe these as separate figures. They are not, under current law. If you see a source citing two different dollar amounts for "catastrophic threshold" and "out-of-pocket cap" for the same plan year, one of those figures is wrong or outdated.
2027 Part D cost projections compared to recent years
The table below shows confirmed figures for 2024 through 2026, and the CMS projection for 2027. Every 2027 figure in this table is a projection from the CY 2027 Advance Notice (CMS, January 26, 2026) and is not yet locked in.
| Plan Year | Annual Deductible Cap | Catastrophic Threshold / Annual OOP Cap | Coverage Gap Status | Cost in Catastrophic Phase |
|---|
| 2024 (pre-redesign) | $545 | $8,000 in total drug costs (approximately $3,300 to $3,500 TrOOP) | Existed | $0 (as of Jan 1, 2024) |
| 2025 | $590 | $2,000 | Eliminated | $0 |
| 2026 | $615 | $2,100 | Eliminated | $0 |
| 2027 (CMS projection, not final) | approximately $700 | approximately $2,400 | Eliminated | $0 (projected to continue) |
Source: CMS Final CY 2026 Part D Redesign Program Instructions (for 2025 and 2026 figures); CMS CY 2027 Medicare Advantage and Part D Advance Notice, released January 26, 2026 (for 2027 projections).
Two things stand out in the projection. First, the jump from 2026 to 2027 is proportionally larger than the jump from 2025 to 2026. The out-of-pocket cap rose about 5% from 2025 to 2026, but CMS's projected 2027 figure represents roughly a 14% increase over 2026. The deductible shows a similar pattern, projected to rise about 14% compared to a 4% increase the prior year. Second, both figures are calculated using the same method Congress wrote into the IRA: an "annual percentage increase" tied to the growth in average expenditures per Part D enrollee, not a flat inflation adjustment. When per-enrollee drug spending trends up faster, as CMS's actuaries currently project for 2027, the deductible and catastrophic threshold rise faster too.
Where the $2,400 projection actually comes from
CMS does not pick these numbers arbitrarily, and it does not finalize them all at once. The annual cycle looks like this:
- Late January: CMS releases the Advance Notice with proposed Medicare Advantage and Part D payment policies and preliminary benefit parameter estimates for the coming year. The $2,400 catastrophic threshold and roughly $700 deductible for 2027 come from the Advance Notice released January 26, 2026.
- Early April: CMS finalizes payment policy in the Rate Announcement and, in recent years, a companion Part D Redesign Program Instructions document. For CY 2027, the final rule and Rate Announcement were published April 2 and April 6, 2026, respectively, largely codifying the redesign's structure into regulation.
- Early June: Part D plan sponsors submit their 2027 bids to CMS.
- Late July to early August: CMS releases the national average bid amount and finalizes the exact benefit parameters (deductible, out-of-pocket cap, and related dollar figures) based on that bid data. This is the step where a projected figure becomes an official one.
- By September 30: Every Part D and Medicare Advantage plan sends enrollees an Annual Notice of Change letter listing the plan's actual 2027 costs, including how the plan applies the standard deductible and catastrophic threshold.
As of this writing, CMS has not yet published the final CY 2027 benefit parameters through that summer bid process. The $2,400 catastrophic threshold and roughly $700 deductible are working projections built into CMS's Advance Notice and rate-setting calculations. They have moved through two rounds of CMS publication without changing, which makes a large swing unlikely, but "unlikely to change" is not the same as final. Anyone budgeting for 2027 drug costs should treat $2,400 as a planning estimate, not a locked number, until CMS's late-summer 2026 bid release or your plan's ANOC letter confirms it.
What the projected threshold means for your 2027 drug costs
If the $2,400 projection holds, a Part D enrollee taking expensive brand-name or specialty medications would need to spend up to about $700 out of pocket during the deductible phase, then roughly 25% coinsurance on the next several thousand dollars of drug costs, until total out-of-pocket spending for the year reaches $2,400. After that, the enrollee owes nothing more for covered drugs through December 31, 2027.
For someone on a single high-cost specialty drug, this can mean hitting the $2,400 cap within the first one or two prescription fills of January. Since 2025, Medicare has required Part D plans to offer the Medicare Prescription Payment Plan (sometimes called M3P), which lets enrollees spread that cost across monthly installments through the rest of the year instead of paying it all at once at the pharmacy counter. CMS made this option permanent starting in 2025, and it remains available for 2026 and, per current CMS guidance, is expected to continue into 2027. Enrollees who want to use it must opt in through their plan, typically before the start of the plan year or shortly after a large fill.
Extra Help can lower your costs below the standard threshold
Medicare beneficiaries with limited income and resources may qualify for the Part D Low-Income Subsidy, known as Extra Help, which reduces or eliminates the deductible and caps copays well below the standard catastrophic threshold. The 2026 limits are below; CMS has not yet released 2027 Extra Help limits, which typically update each fall.
| Household | 2026 Annual Income Limit (approximate) | 2026 Resource Limit |
|---|
| Single | $23,475 | $18,090 |
| Married, living together | $31,725 | $36,100 |
Source: CMS CY 2026 LIS Resource and Cost-Sharing Limits Memo. Limits are higher in Alaska and Hawaii. These figures include a $1,500 per person allowance set aside for burial expenses that does not count against the resource limit.
Full Extra Help eligibility in 2026 drops the deductible to $0, caps copays around $5.10 for generics and $12.65 for brand-name drugs, and still moves the enrollee to $0 cost sharing once they reach the standard out-of-pocket cap for the year. People who receive Medicaid, Supplemental Security Income (SSI), or a Medicare Savings Program are typically enrolled in Extra Help automatically. Everyone else has to apply through the Social Security Administration.
How to prepare for the 2027 catastrophic threshold now
You do not need to do anything to "apply" for catastrophic coverage. It applies automatically once your tracked out-of-pocket spending for the year hits the threshold, whatever that threshold turns out to be. What you can do now, in the second half of 2026, is:
- Track your 2026 out-of-pocket drug spending so you know how close you are to the $2,100 threshold this year.
- Ask your Part D plan or pharmacist whether the Medicare Prescription Payment Plan makes sense for your 2027 prescriptions, especially if you take one or two high-cost specialty drugs.
- Watch for your plan's Annual Notice of Change letter in September 2026, which will confirm your plan's actual 2027 costs rather than the CMS-wide projection.
- If your income is limited, check whether you qualify for Extra Help before the 2027 plan year starts, since it lowers costs from day one rather than only after you reach the catastrophic threshold.
- Compare plans during the October 15 to December 7, 2026 Annual Enrollment Period once official 2027 figures are published, since the standard deductible and threshold are the same across plans but premiums and formularies are not.
Frequently Asked Questions
Is the $2,400 Part D catastrophic threshold for 2027 official?
No. As of this writing, $2,400 is a CMS projection from the CY 2027 Medicare Advantage and Part D Advance Notice released January 26, 2026. CMS typically finalizes the exact dollar figure through its Part D bid process in late July or early August of the year before the plan year begins, with plan-level confirmation arriving in Annual Notice of Change letters by September 30, 2026.
What is the difference between the catastrophic threshold and the out-of-pocket cap?
Under the Part D structure in place since 2025, there is no difference. The catastrophic threshold and the annual out-of-pocket cap are the same dollar figure. Reaching that amount in out-of-pocket spending is what triggers catastrophic coverage, where the enrollee pays $0 for the rest of the calendar year. This is different from the pre-2025 system, which used two separate figures.
Why is the projected 2027 increase larger than the 2026 increase?
The annual deductible cap and catastrophic threshold are calculated using a formula tied to the growth in average per-enrollee Part D drug expenditures, not a flat cost-of-living adjustment. CMS's current projections for 2027 drug spending growth are higher than the growth rate used to calculate 2026 figures, which is why the projected increase (roughly 14%) is larger than last year's increase (roughly 5%).
Will the coverage gap ("donut hole") come back in 2027?
No. The Inflation Reduction Act permanently eliminated the Part D coverage gap starting in 2025. There is no indication in any CMS Advance Notice, Rate Announcement, or final rule that the coverage gap will return in 2027 or any future year under current law.
Does the catastrophic threshold reset every plan year?
Yes. Out-of-pocket spending toward the catastrophic threshold resets to $0 on January 1 of each plan year. Spending from one plan year does not carry over into the next, even if you stay on the same Part D plan.
How can I find my plan's actual 2027 costs once they are final?
Your Part D or Medicare Advantage plan is required to mail you an Annual Notice of Change by September 30 each year, listing your specific plan's deductible, cost-sharing tiers, and how it applies the standard catastrophic threshold for the coming year. You can also check Medicare's official Plan Finder tool once 2027 plan data is loaded, typically in early October before the Annual Enrollment Period begins.
