Key Takeaways

• Even with the 2025 improvements to Medicare Part D, out-of-pocket costs can still catch you off guard if you don’t understand how the benefit phases work.

• Hidden costs like tiered formularies, coinsurance, and non-preferred pharmacy pricing can increase what you pay when it’s time to fill your prescriptions.

What You Think You’ll Pay Isn’t Always What You Actually Do

Medicare Part D plans often appear straightforward when you look at a summary. You might expect to pay a deductible, then a set copayment or coinsurance. But when you actually fill your prescriptions, you may notice a wide difference between what you expected and what the pharmacy charges.

This is usually because:

• The drug you need is in a higher tier than expected

• Your plan charges coinsurance instead of a flat copay

• You’re in a different coverage phase than you assumed

Understanding how Part D is structured in 2025 is essential if you want to avoid surprises.

The Four Phases of Part D Coverage in 2025

The cost you pay at the pharmacy depends on which phase of coverage you’re currently in. Each plan year includes four parts:

1. The Deductible Phase

• In 2025, your plan can charge a deductible of up to $590.

• Until this amount is met, you pay the full negotiated price of your medications.

• Some plans waive the deductible for lower-tier generic drugs.

2. The Initial Coverage Phase

• After the deductible is met, you enter the initial coverage phase.

• You share the cost of your prescriptions with your plan, typically through copayments or coinsurance.

• You stay in this phase until your total drug costs (what you and the plan pay combined) reach $5,030.

3. The Catastrophic Phase Is Eliminated

• Before 2025, there was a catastrophic phase with lower copays after you paid a set amount out-of-pocket.

• Starting in 2025, the catastrophic phase has been removed and replaced with a $2,000 annual out-of-pocket cap.

• Once you hit this cap, your plan pays 100% of the cost for covered prescriptions for the rest of the calendar year.

4. New Out-of-Pocket Cap Replaces Old Structure

• Once your out-of-pocket spending reaches $2,000 in 2025, you pay nothing more for covered drugs.

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

• You must still pay premiums and costs for drugs not on your plan’s list.

Formularies and Tiers Change What You Pay

Every Part D plan has a formulary, or a list of covered drugs, categorized into cost tiers:

• Tier 1: Preferred generics

• Tier 2: Non-preferred generics

• Tier 3: Preferred brand-name drugs

• Tier 4: Non-preferred brand-name drugs

• Tier 5: Specialty medications

Drugs in higher tiers come with higher out-of-pocket costs. Even if two plans cover the same medication, it could be placed in different tiers depending on the insurer. This affects whether you pay a $10 copay or a 45% coinsurance rate.

Coinsurance Can Be More Expensive Than Copays

Unlike copayments, which are fixed amounts, coinsurance is a percentage of the drug’s total cost. This difference matters a lot, especially for high-cost medications.

For example:

• A $100 generic drug with a 25% coinsurance = $25 out-of-pocket

• A $1,000 specialty drug with 25% coinsurance = $250 out-of-pocket

If you don’t realize your plan uses coinsurance for certain tiers, your pharmacy bill can come as a shock.

Non-Preferred Pharmacies Mean Higher Prices

Many Part D plans have preferred pharmacy networks. Filling your prescriptions at a non-preferred pharmacy can lead to much higher costs.

• A preferred pharmacy may offer a $15 copay for your brand-name drug

• A non-preferred pharmacy could charge you $40 for the same medication

It’s essential to confirm your pharmacy’s status with your plan every year, especially during open enrollment.

Mail Order Can Save Money, But Not Always

Some plans promote mail-order pharmacy services for 90-day supplies at a reduced cost. While this can be helpful, not all drugs qualify, and it might not always be cheaper than a retail pharmacy.

Before you opt for mail order, check:

• What tier your drug is in

• Whether the cost is truly lower than your local pharmacy

• If your plan limits mail-order discounts to certain medications

Prior Authorization and Step Therapy Delays

Beyond just cost, many plans apply utilization management tools that affect access and spending.

• Prior authorization: You must get your doctor and plan to approve the drug before it is covered.

• Step therapy: Your plan may require you to try a cheaper drug first.

These requirements can delay your treatment and increase your cost if you pay out-of-pocket while waiting for approval.

Late Enrollment Penalty Adds to Your Premium

If you delayed signing up for Part D and didn’t have other creditable coverage, you likely pay a late enrollment penalty (LEP).

• The LEP is added to your monthly premium and continues as long as you have Part D.

• It’s calculated based on how many full months you went without coverage after your Initial Enrollment Period.

In 2025, this remains one of the most overlooked costs and can significantly raise your total annual spending.

Your Plan Can Change Every Year

Each fall, you receive an Annual Notice of Change (ANOC) letter detailing how your plan will change in the next calendar year. Key changes that impact your costs include:

• Drugs added or removed from the formulary

• Tier changes for existing medications

• Copay or coinsurance adjustments

• Changes in preferred pharmacy networks

If you don’t review these updates and switch during open enrollment (October 15 to December 7), you could be locked into a more expensive plan.

Premiums Are Only One Part of the Equation

It’s easy to compare plans based on monthly premiums, but this tells only part of the story. To truly estimate your costs, look at:

• Your drug list and where they fall on the plan’s formulary

• Coinsurance versus copayment structures

• Whether your pharmacy is in-network

• The deductible amount and when it applies

Two plans with similar premiums could differ by hundreds or even thousands of dollars per year when you account for out-of-pocket medication costs.

The Medicare Prescription Payment Plan: New for 2025

To help manage rising costs, a new option is available this year: the Medicare Prescription Payment Plan.

• This allows you to spread your out-of-pocket costs throughout the year in monthly installments.

• You must enroll to participate; it is not automatic.

• It can help make high upfront drug costs more manageable, especially before you reach the $2,000 cap.

This program offers a budgeting alternative, but you should still evaluate whether the total costs make sense based on your medication needs.

Inflation Reduction Act Measures Continue to Phase In

Some changes to Part D costs in 2025 are part of broader reforms under the Inflation Reduction Act. Highlights include:

• The $2,000 annual cap now protects you from unlimited drug spending

• Vaccines covered with no cost-sharing

• Insulin products capped at $35 per month for each covered prescription

While these rules improve affordability, they only apply to drugs covered by your specific Part D plan. If your medication is excluded, you may face higher costs despite these protections.

Annual Planning Is the Best Way to Avoid Cost Surprises

Each year, it’s essential to revisit your Part D coverage and ask:

• Have your medications changed?

• Have any drugs increased in tier or been removed from the formulary?

• Is your current pharmacy still considered preferred?

• Do you anticipate hitting the $2,000 out-of-pocket cap?

By using the Medicare Plan Finder tool or speaking with a licensed agent, you can make sure you’re not overpaying.

What You Need to Remember About Filling Prescriptions in 2025

Medicare Part D provides essential drug coverage, but it’s not as simple as paying a flat fee. What you actually pay depends on your plan’s design, the drugs you take, the pharmacy you use, and the current phase of your benefit.

Failing to review these elements each year could result in significant and unnecessary out-of-pocket spending.

For personalized guidance on which plan structure fits your current prescriptions and needs, get in touch with a licensed agent listed on this website. An expert can help you evaluate all your options and avoid paying more than necessary.