Key Takeaways

• Medicare Part D provides coverage for prescription drugs, helping reduce the out-of-pocket costs associated with your medications.

• In 2025, a $2,000 annual cap on out-of-pocket drug costs now applies under Part D, which can significantly lessen your financial burden.

Understanding the Purpose of Medicare Part D

When you first hear about Medicare Part D, it might seem like just another optional piece of your Medicare coverage puzzle. But it serves a specific and essential role. While Medicare Part A covers hospital services and Part B takes care of outpatient medical services, neither helps much when it comes to your everyday prescription medications. That’s where Part D steps in.

Medicare Part D is the part of Medicare designed to cover prescription drugs. It helps you afford medications that you may need regularly for ongoing conditions or new prescriptions written during your medical treatment.

Who Can Get Medicare Part D?

You are eligible for Medicare Part D if:

• You are enrolled in Medicare Part A and/or Part B.

• You live in the service area of a Part D plan.

You can sign up for Part D during the Initial Enrollment Period, which begins three months before you turn 65 and ends three months after your birthday month. If you miss that window, you may have to wait until the Annual Enrollment Period (October 15 to December 7) or qualify for a Special Enrollment Period based on life events like losing employer drug coverage.

Keep in mind that late enrollment can result in a permanent penalty added to your premium if you go without creditable drug coverage for 63 days or more.

What Does Medicare Part D Actually Cover?

Coverage varies by plan, but all Medicare Part D plans are required to include a wide range of both generic and brand-name drugs. The federal government requires coverage of drugs in the following six categories:

• Anticancer drugs

• Antidepressants

• Antipsychotics

• Anticonvulsants

• Immunosuppressants

• HIV/AIDS treatments

Plans use a formulary, which is a list of covered drugs, divided into tiers. Typically:

• Tier 1 includes generic drugs with the lowest copayment.

• Tier 2 contains preferred brand-name drugs.

• Tier 3 and above include non-preferred and specialty drugs, which usually have higher copayments or coinsurance.

Reviewing the formulary each year is crucial because plans can change which drugs they cover or how they classify them from one year to the next.

The Four Stages of Part D Coverage in 2025

To understand how costs work under Part D, it helps to know the four stages your plan follows in a calendar year.

1. Deductible Phase

You pay 100% of your drug costs until you reach the deductible amount. In 2025, the deductible can be as high as $590, depending on your plan.

2. Initial Coverage Phase

After the deductible, your plan begins to share costs with you. You pay a copayment or coinsurance, and the plan pays the rest until your total drug costs hit $5,030.

3. Catastrophic Phase Replaced in 2025

Previously, after hitting a certain threshold, you’d pay a small percentage of drug costs during the catastrophic phase. As of 2025, this phase has been eliminated and replaced by a $2,000 out-of-pocket cap for the year. Once you spend $2,000 in covered out-of-pocket drug costs, your plan covers 100% of the rest.

4. Prescription Payment Plan (Optional)

Also new for 2025 is the Medicare Prescription Payment Plan. This option lets you spread your out-of-pocket drug costs over the year in monthly payments rather than paying all at once. You must opt in to use this program.

How Part D Plans Manage Drug Access

Part D plans use several tools to manage access and costs. It’s important to know about these so you’re not caught off guard.

• Prior Authorization: Your doctor may need to get approval from the plan before it covers certain medications.

• Quantity Limits: The plan may limit how much of a medication you can get at one time.

• Step Therapy: You may be required to try a lower-cost drug first before the plan covers a more expensive one.

If your doctor believes a certain drug is medically necessary for you, they can request an exception.

How to Choose a Part D Plan

Not all Part D plans are the same. Even though they must meet federal guidelines, the drug list, costs, and pharmacy networks can vary widely. Here’s what to consider:

• Your Medications: Make sure the plan covers your current drugs.

• Pharmacy Access: Check whether your preferred pharmacy is in the plan’s network.

• Total Costs: Don’t just look at the premium. Consider deductibles, copays, and coinsurance.

• Star Ratings: Medicare assigns star ratings to Part D plans based on performance. Higher-rated plans tend to offer better service and reliability.

Each year, you should re-evaluate your plan during the Annual Enrollment Period to ensure it still meets your needs.

Penalties and Pitfalls to Avoid

There are a few common mistakes that can cost you money or coverage:

• Missing the Enrollment Window: Delaying enrollment without creditable drug coverage means you’ll likely pay a lifetime penalty.

• Not Reviewing the Plan Annually: Plans change their drug lists and costs every year. Ignoring the Annual Notice of Change can lead to surprises at the pharmacy.

• Assuming All Pharmacies Are Covered: Some plans have preferred pharmacy networks. Using a pharmacy outside that network could cost more.

Being proactive and informed helps you avoid these issues and make smarter choices.

Coordination with Other Drug Coverage

If you have other drug coverage, such as through a retiree plan, the Veterans Health Administration, or employer coverage, you’ll want to compare it with Part D to determine which offers better value. Sometimes, you may not need to enroll in Part D if your other coverage is considered creditable.

But if you lose your other coverage, you’ll typically be eligible for a Special Enrollment Period to get a Part D plan without penalty, as long as you act promptly.

Additional Help for Prescription Drug Costs

If you have limited income and resources, you may qualify for the Extra Help program. This federal program helps pay for:

• Monthly premiums

• Annual deductibles

• Copayments

In 2025, more people qualify for Extra Help due to updated eligibility thresholds. You can apply at any time through Social Security or your state Medicaid office.

Also, some state pharmaceutical assistance programs may offer help, and some charitable organizations provide medication cost support. It’s worth exploring these options if drug costs are a concern.

What to Expect at the Pharmacy

When you visit the pharmacy, always use your plan’s preferred network and present your Part D card. Ask the pharmacist if your prescription has any lower-cost alternatives within your plan’s coverage tiers.

Also, many plans offer mail-order options, which can reduce costs and ensure a steady supply of medications for chronic conditions.

Reviewing Your Coverage Each Year Matters

Even if your medications haven’t changed, your plan might. Formularies, costs, and pharmacy networks can all shift from year to year. You should receive an Annual Notice of Change each September. Use it to decide whether to keep your current plan or switch during the Annual Enrollment Period.

The Annual Enrollment Period runs from October 15 to December 7 every year, and any changes you make take effect on January 1 of the following year.

Get the Prescription Drug Coverage That Fits You

Understanding what Medicare Part D covers in 2025 helps you make better healthcare decisions. From knowing your coverage stages to evaluating your plan every year, staying informed gives you the power to manage your prescription drug costs with confidence. If you’re still unsure about your options or how to compare plans, speak with a licensed agent listed on this website for personalized support.