Key Takeaways

• Medicare Part D has specific rules, timelines, and coverage phases that can be confusing and may lead to unexpected out-of-pocket costs if you’re not fully informed.

• Many people are caught off guard by exclusions, drug tiers, prior authorization rules, and late enrollment penalties that could have been avoided with timely planning and expert guidance.

Why Medicare Part D Isn’t as Straightforward as It Sounds

Medicare Part D is the portion of Medicare that provides outpatient prescription drug coverage. It may seem like a helpful solution on the surface, but it comes with several complex details that can leave you surprised, especially at the pharmacy counter.

If you’re approaching Medicare eligibility or already enrolled, understanding how Part D really works is critical to avoid coverage gaps, penalty costs, or medication denials when you least expect them.

The Four Phases of Coverage That Affect What You Pay

Medicare Part D has a unique structure divided into four coverage stages. These stages determine how much you pay for prescriptions throughout the year.

1. The Deductible Phase

In 2025, the maximum deductible for any Part D plan is $590. During this phase, you pay the full cost of your medications until you meet this amount. However, some plans may offer a lower deductible or cover certain medications before the deductible is met.

2. The Initial Coverage Phase

Once your deductible is satisfied, you enter the initial coverage phase. Your plan begins to share the cost of your prescriptions. You typically pay a copayment or coinsurance, while the plan pays the remainder. This phase continues until your total drug costs (including both your share and the plan’s share) reach $5,030.

3. The Catastrophic Coverage Phase Is Replaced in 2025

Before 2025, there was a catastrophic coverage phase where after reaching a certain out-of-pocket limit, you paid only a small amount for drugs. In 2025, this is replaced with a hard out-of-pocket cap of $2,000 for prescription drugs under Part D. Once you reach this limit, your plan pays 100% of the cost of covered drugs for the rest of the year.

4. The Donut Hole No Longer Exists, But Gaps Still Do

As of 2025, the traditional coverage gap known as the “donut hole” has officially ended. Still, people continue to feel the pinch in the initial coverage phase due to high coinsurance for expensive brand-name drugs or specialty medications. The transition between phases can lead to unexpected cost increases if you’re not closely tracking your spending.

Late Enrollment Penalties Are Lifelong

If you delay enrolling in a Medicare Part D plan when you are first eligible and do not have other creditable drug coverage, you may face a late enrollment penalty. This penalty is added to your premium for as long as you have Part D.

The penalty is calculated based on how many full months you were eligible but went without Part D or other creditable coverage. In 2025, it amounts to 1% of the national base beneficiary premium (currently around $34.70) for each month you delayed, and it accumulates permanently.

Drug Tiers: Not All Medications Are Treated Equally

Every Part D plan uses a formulary, which is a list of covered drugs organized into different “tiers.”

• Tier 1: Preferred generics with the lowest copayment.

• Tier 2: Non-preferred generics.

• Tier 3: Preferred brand-name drugs.

• Tier 4 and 5: Non-preferred brands and specialty drugs with higher out-of-pocket costs.

You may assume that if a drug is covered, it will be affordable. However, the tier placement directly affects your cost. Two similar drugs may fall into different tiers with dramatically different copayments or coinsurance rates.

Formularies Can Change Annually

Part D plans are allowed to update their drug formularies every year. That means a medication you rely on today may move to a higher tier, require prior authorization, or be dropped altogether in the upcoming year.

These changes are announced in the Annual Notice of Change (ANOC) mailed to you each fall. If you don’t review the document carefully, you might not know your coverage changed until you’re denied at the pharmacy in January.

Restrictions That Delay or Deny Coverage

Many beneficiaries are surprised when their prescription is denied or delayed due to additional restrictions. These are called utilization management tools, and they include:

• Prior Authorization: You need your doctor to justify why you need a specific drug before the plan will cover it.

• Step Therapy: You may be required to try less expensive alternatives first and “fail” those before you’re allowed the prescribed medication.

• Quantity Limits: Your plan may restrict how much of a drug you can get at one time, even if your doctor prescribes more.

These policies can cause frustrating delays and may require appeals, which can be time-consuming.

Pharmacies and Plan Networks Don’t Always Align

Not all pharmacies are treated equally under every Part D plan. Your plan may have a network of preferred pharmacies where you get lower prices. If you fill prescriptions outside that network, you could pay more — or in some cases, the drug may not be covered at all.

In 2025, some plans distinguish between preferred, standard, and out-of-network pharmacies. If you’re traveling or relocate seasonally, this can complicate access to medications unless you plan ahead.

What You Pay Is Affected by Your Income

If your income is above a certain threshold, you may have to pay an Income-Related Monthly Adjustment Amount (IRMAA) in addition to your plan premium. This applies even if you choose the same Part D plan as someone else with lower income.

In 2025, IRMAA applies to individuals with modified adjusted gross income (MAGI) over $106,000 and couples over $212,000. The additional premium is deducted from your Social Security check or billed directly if you’re not yet receiving benefits.

Mid-Year Changes Are Extremely Limited

Once you enroll in a Part D plan, you’re locked into it for the calendar year unless you qualify for a Special Enrollment Period (SEP). These are only granted for specific life events such as:

• Moving to a new area where your plan isn’t offered

• Losing other creditable coverage

• Entering or leaving a long-term care facility

Without one of these events, your next opportunity to change plans is during the Annual Enrollment Period (October 15 to December 7). The new plan then takes effect January 1.

Coverage Isn’t Automatic Just Because You’re in Medicare

One common misconception is that drug coverage is automatic with Medicare. It’s not. If you’re enrolled in Original Medicare (Parts A and B), you need to sign up separately for a Part D plan if you want drug coverage.

Missing this step can result in going without needed medications or facing full retail prices at the pharmacy. While Medicare Advantage plans often include Part D, if you’re not in one, this step is essential.

Why You Should Review Your Coverage Every Year

Even if you’re satisfied with your current plan, you should still review your coverage annually during Open Enrollment. Here’s why:

• Your prescriptions may have changed.

• Your plan’s formulary may have been updated.

• Your pharmacy preferences may have shifted.

• Better or lower-cost options may now be available in your area.

Failing to compare plans could mean spending more than necessary or losing access to a preferred medication.

Smart Planning Starts with the Right Help

Understanding the details of Medicare Part D in 2025 is essential, but you don’t have to do it alone. With so many moving parts — including tiers, restrictions, IRMAA, and enrollment timelines — getting expert help can make a major difference.

Licensed agents can review your prescriptions, your preferred pharmacies, and your income to recommend a Part D plan that meets your needs and avoids unpleasant surprises.

Prepare Now to Avoid Surprises at the Pharmacy

The true cost and coverage of Medicare Part D aren’t always visible until it’s too late. Hidden details like drug tier shifts, prior authorizations, and out-of-network pharmacy charges often create unexpected financial and logistical burdens. By reviewing your plan annually, keeping track of enrollment deadlines, and working with a licensed agent listed on this website, you can avoid most of the common pitfalls people experience with Part D.