Key Takeaways

• In 2025, Medicare offers several options for prescription drug coverage, including standalone Part D plans and coverage through Medicare Advantage.

• Understanding how drug tiers, deductibles, and out-of-pocket caps work can help you manage your costs and avoid unexpected bills.

Understanding Your Prescription Coverage Options

In 2025, Medicare provides two main pathways to get prescription drug coverage:

• Medicare Part D (Standalone Prescription Drug Plans): These plans are available to anyone with Medicare and work alongside Original Medicare (Parts A and B).

• Medicare Advantage Plans (Part C) with Drug Coverage: These combine hospital, medical, and prescription drug coverage in one plan.

You must be enrolled in either Part A or Part B to sign up for a Part D plan. For Medicare Advantage plans with drug coverage, you need to be enrolled in both Parts A and B.

How the 2025 Medicare Part D Structure Works

The structure of Medicare Part D has changed over the years, and 2025 brings some of the most consumer-friendly updates:

• Annual Deductible: In 2025, the maximum deductible allowed by Medicare is $590. Some plans may have lower deductibles, but none can exceed this limit.

• Initial Coverage Phase: After meeting your deductible, you typically pay a portion of your drug costs (copay or coinsurance) until your total drug spending reaches a set limit.

• Catastrophic Phase Changes: As of 2025, once your out-of-pocket costs reach $2,000, you pay nothing for the rest of the year for covered drugs.

This change removes the need for the old “donut hole” phase, which used to increase out-of-pocket costs midway through the year.

Enrollment Periods You Should Know

Missing a key Medicare enrollment window can lead to penalties or delays in coverage. These are the important periods in 2025:

• Initial Enrollment Period (IEP): A 7-month window around your 65th birthday. If you’re newly eligible, this is your first chance to sign up for Part D.

• Annual Enrollment Period (AEP): From October 15 to December 7 each year, you can join, drop, or switch drug plans. Changes take effect January 1.

• Open Enrollment for Medicare Advantage (MA OEP): From January 1 to March 31, you can switch Medicare Advantage plans or go back to Original Medicare and get a standalone Part D plan.

• Special Enrollment Periods (SEPs): Triggered by events like moving or losing other coverage. These allow plan changes outside the regular periods.

What Affects the Cost of Your Drugs Under Medicare

Prescription costs can vary widely, depending on the following factors:

1. Drug Tier System

Medicare drug plans group medications into tiers. The lower the tier, the lower your cost.

• Tier 1: Preferred generics (lowest cost)

• Tier 2: Non-preferred generics

• Tier 3: Preferred brand-name drugs

• Tier 4: Non-preferred brand-name drugs

• Tier 5: Specialty drugs (highest cost)

Each plan may have different drug lists, so it’s critical to check your plan’s formulary before enrolling.

2. Pharmacy Network Participation

Most plans have networks of pharmacies that offer reduced prices. Using out-of-network or non-preferred pharmacies could increase your out-of-pocket expenses.

3. Mail-Order and 90-Day Supply Options

Some plans offer savings if you use a mail-order service or get a 90-day supply for maintenance medications. This can help you better control your budget and reduce the risk of mid-year shortages.

4. Low-Income Subsidies (Extra Help)

In 2025, the Extra Help program continues to support individuals with limited income and resources. It helps reduce premiums, deductibles, and co-pays for Part D.

Eligibility is based on income and asset limits, and the program is automatically available to certain Medicaid-eligible individuals.

How the New $2,000 Out-of-Pocket Cap Works

Starting in 2025, Medicare has introduced a major improvement to protect you from high drug costs. Once your total out-of-pocket spending reaches $2,000, you automatically enter the catastrophic coverage phase:

• You pay $0 for covered prescription drugs for the rest of the year.

• This cap applies only to covered drugs on your plan’s formulary.

• The $2,000 threshold includes deductible payments, co-pays, and coinsurance.

This new rule is especially beneficial for people who take high-cost medications and used to spend thousands in the past.

Tips to Keep Your Medication Costs in Check

Even with better protections in 2025, planning ahead can help you reduce your total spending:

Compare Plans Every Year

Don’t auto-renew without checking if your prescriptions are still covered and if the costs have changed. Use the Medicare Plan Finder tool or speak with a licensed agent.

Use Generic Drugs When Possible

Ask your provider if a lower-tier or generic version of your medication is available. It can make a big difference in what you pay each month.

Stay Within the Network

Always use a preferred pharmacy within your plan’s network. Many plans offer lower rates when you stay in-network.

Apply for Extra Help If You Qualify

If your income and assets are limited, check your eligibility for the Extra Help program. It can significantly reduce your costs.

Request a Medication Review

Some plans offer Medication Therapy Management (MTM) programs. These reviews help ensure you’re on the most cost-effective and safe drug regimen.

Don’t Forget About the Part D Penalty

If you go too long without prescription drug coverage after becoming eligible, you could face a permanent late enrollment penalty:

• The penalty is 1% of the national base premium for each full month you were without coverage.

• It applies for as long as you have Medicare drug coverage.

• Avoid this by enrolling during your IEP or having other creditable drug coverage (like employer or union plans).

Understanding Formularies and Prior Authorization

Each Medicare Part D plan has a formulary—a list of covered medications. Plans often use additional cost control tools:

• Prior Authorization: Requires approval before the plan will cover certain drugs.

• Step Therapy: You may need to try lower-cost drugs before the plan approves more expensive ones.

• Quantity Limits: Restrictions on how much medication you can get at once.

If your drug is not covered, or is denied, you can request an exception or file an appeal through your plan.

Reviewing Annual Notice of Change (ANOC) Letters

In September, you’ll receive a letter from your current Medicare plan outlining any changes for the upcoming year. This is your chance to:

• Compare your current plan against others

• Check if your medications are still covered

• Review cost changes, including premiums and out-of-pocket expenses

Staying informed helps prevent unwelcome surprises when the new plan year begins on January 1.

Prescription Drug Coverage That Works for You

Getting the most value from Medicare prescription drug coverage in 2025 starts with staying informed. With a $2,000 annual cap, tier-based pricing, and pharmacy network incentives, your out-of-pocket exposure can be controlled—but only if you actively engage with your coverage options.

If you need help evaluating your drug coverage or understanding how the 2025 changes affect you, reach out to a licensed agent listed on this website for professional advice tailored to your situation.