Key Takeaways

• Even with Medicare drug coverage in 2025, you can still face considerable out-of-pocket expenses due to deductibles, copayments, and coverage limits.

• Understanding the structure of Medicare Part D and how it coordinates with other parts of Medicare is essential to avoid unexpected costs.

What Medicare Drug Coverage Does—and Doesn’t—Include

Medicare offers prescription drug coverage primarily through Part D and Medicare Advantage plans that include drug benefits. While this coverage helps reduce medication costs, it does not eliminate them. In 2025, even with improvements to Medicare Part D, including a $2,000 cap on out-of-pocket drug costs, there are still financial responsibilities you need to plan for.

Drug coverage through Medicare typically includes:

• A deductible before your plan begins covering costs

• Copayments or coinsurance for each prescription

• A tiered formulary system, where drugs on different tiers have varying cost-sharing levels

• Coverage that may change annually depending on plan updates

But what it doesn’t include is full protection from costs, especially if you take multiple brand-name medications, or if you rely on drugs not included on your plan’s formulary.

How the Part D Deductible Affects You

Each year, Medicare sets a maximum deductible amount that Part D plans can charge. In 2025, this deductible is $590. Many plans charge the full amount. Until you’ve paid this, you’re responsible for 100% of your prescription drug costs.

If you take even a few expensive medications, you might reach your deductible quickly. But if you only take occasional medications, you may feel you’re paying a lot upfront before you receive any cost-sharing assistance from your plan.

Understanding the Initial Coverage Phase

After you meet your deductible, you enter the initial coverage phase. Here, your plan begins sharing costs with you. However, this doesn’t mean you’re done paying out-of-pocket. You’ll still pay copayments or coinsurance for each medication.

• Generic drugs typically have lower copays

• Brand-name drugs, especially on higher tiers, come with higher cost-sharing

Your total drug costs are tracked by your plan—this includes what you pay and what your plan pays. Once your total drug costs reach a certain threshold, you move into the next phase.

What Happens After You Reach the $2,000 Cap?

A significant change in 2025 is the implementation of a $2,000 annual cap on out-of-pocket drug spending. Once you’ve paid this amount, you will not pay anything further for covered prescription drugs for the rest of the year.

While this cap provides relief, it doesn’t eliminate early-year expenses. If you reach the cap by spring or summer, you’ve likely already paid a substantial amount. Budgeting for this early-year spending is important, especially for those on fixed incomes.

Drug Formularies Can Leave Gaps in Protection

Medicare drug plans do not cover every prescription drug. Each plan has a formulary—a list of covered medications. If your medication isn’t on the formulary, your plan will not cover it unless you go through an exception process.

You may face one of the following challenges:

• Your drug isn’t covered at all

• Your drug is covered but requires prior authorization

• A similar, less expensive drug is preferred, and your cost-sharing is higher for your drug

These situations can lead to surprise costs unless you review your plan’s formulary every year.

Switching Plans Doesn’t Always Guarantee Savings

Medicare allows you to switch drug plans during the Annual Enrollment Period from October 15 to December 7 each year. You might assume that changing plans will reduce your costs. Sometimes it does—but not always.

Switching plans can be helpful if:

• Your current plan drops coverage of a drug you need

• Another plan has lower cost-sharing for your prescriptions

However, the best plan for one person may not be the best for another. It depends on your list of medications, preferred pharmacies, and cost-sharing structure. Also, changes to plans can happen every year, so what works well in 2025 might not work as well in 2026.

Late Enrollment Penalties Still Apply

If you delay enrolling in Medicare Part D when you’re first eligible and don’t have other creditable prescription drug coverage, you may face a late enrollment penalty. This penalty is added to your premium and continues for as long as you have drug coverage.

The penalty is calculated as 1% of the national base beneficiary premium for each full month you delayed enrollment. In 2025, the base premium is subject to change, but the penalty can quickly add up over time.

Even if you’re not taking prescriptions now, it’s generally better to enroll in a plan with basic coverage than to wait and pay more later.

Coordination with Other Parts of Medicare

Part D only covers prescription drugs. Other parts of Medicare, such as Part A and Part B, cover hospital and outpatient services. However, there can be overlap or confusion when it comes to medications administered in different settings.

• Part B typically covers drugs administered in a doctor’s office or outpatient facility, like injections or infusions

• Part D covers medications you take at home, like pills, creams, or inhalers

Sometimes, a medication might be covered under Part B or Part D, depending on how and where it’s administered. This can impact your costs, especially if a medication under Part B has different coinsurance rules than it would under Part D.

High Costs Are Still Common for Specialty Drugs

Even with Medicare drug coverage, specialty medications—used to treat complex or chronic conditions—can be very expensive. These drugs are often placed on the highest tiers of the formulary, requiring a percentage-based coinsurance rather than a fixed copay.

• Coinsurance for specialty drugs can range from 25% to 33%

• These costs count toward your $2,000 out-of-pocket cap, but reaching that cap still requires upfront spending

Planning for these costs is essential, especially if you have conditions such as multiple sclerosis, cancer, rheumatoid arthritis, or hepatitis C.

Extra Help and State Programs Can Offer Support

If you have limited income and resources, you might qualify for the Extra Help program. This can significantly reduce your Part D premiums, deductibles, and copayments.

In 2025, eligibility for Extra Help is expanded to cover more people. If you think you might qualify, it’s worth applying through the Social Security Administration or your state Medicaid office.

Other state-based pharmaceutical assistance programs may also be available to help with specific medications or out-of-pocket costs. These vary by location, so check with your state health department.

Annual Notice of Change Letters Matter More Than You Think

Each fall, your drug plan sends you an Annual Notice of Change (ANOC). This letter outlines any changes to your coverage, premiums, deductibles, or formulary for the following year.

Many people overlook these notices, but they are critical. Reviewing your ANOC allows you to:

• Confirm your drugs will still be covered in the upcoming year

• See if your copayments or preferred pharmacies are changing

• Decide whether switching plans is worth considering during the Annual Enrollment Period

Ignoring this information could leave you with a plan that no longer meets your needs come January.

Getting Clear Help Is Critical to Avoiding Mistakes

Because Medicare drug coverage rules are complex, small mistakes can lead to big expenses. Whether it’s enrolling late, choosing a plan that doesn’t cover your medications, or overlooking an annual change, many common pitfalls can be avoided with proper guidance.

Reliable resources include:

• Your State Health Insurance Assistance Program (SHIP)

• Medicare’s official plan finder tool

• Speaking directly with a licensed agent listed on this website

Drug Coverage Helps, But It Isn’t Foolproof

Having Medicare drug coverage is a smart decision, but it’s not a guarantee that you won’t face high costs. Between deductibles, formulary restrictions, specialty drug coinsurance, and the potential for gaps in coverage, it’s essential to stay informed.

Review your plan annually, understand how much you could pay before reaching the $2,000 cap, and ask questions when something seems unclear. Getting the right plan matters—especially when your health and finances are both on the line.

For professional advice tailored to your unique needs, get in touch with a licensed agent listed on this website.