
This is an update to my post How Medicare Part D Drug Plans Work in 2024. There are many changes for 2025 largely due to the Inflation Reduction Act of 2022. The most dramatic changes are the elimination of the coverage gap (donut hole) drug coverage stage and the introduction of a $2,000 annual maximum out-of-pocket cap for prescription drug costs. Here's what to expect of your Part D drug plan in 2025.
What is Medicare Part D and Do I Have It?
Medicare Part D is a voluntary outpatient prescription drug benefit for people with Medicare provided through private plans from carriers that contract with the federal government. "Outpatient prescription drug" simply means the prescriptions you pick up at the pharmacy. (Other drugs, for example, drugs administered in a medical office or setting, are covered under Medicare Part B, not Part D.) If you are on Original Medicare (Part A & Part B) with a Medicare Supplement, you likely have a stand-alone Part D prescription drug plan (PDP) for which you pay a separate premium and have a separate member ID card. If you are on a Medicare Advantage plan (aka, Part C, and which replaces Original Medicare) then your PDP is likely part of the Medicare Advantage plan (or MAPD, for Medicare Advantage Prescription Drug plan).
The entire list of drugs covered by a PDP is called the formulary. Each drug in the formulary is assigned to a cost tier which determines what you will pay for a drug. Typically, there are five cost tiers, 1 through 5, with most generics assigned to cost tiers 1 or 2 and brand name and specialty drugs assigned to tiers 3 through 5.
Some may not have a PDP at all because they have other prescription drug coverage Medicare considers to be "creditable", meaning that it is at least as comprehensive as a Part D PDP. The most common examples would be Veterans Administration (VA) coverage or Tricare for Life. Many veterans get their drugs through their VA coverage and do not need to be enrolled in a Part D PDP.
Drug Coverage Under Medicare is Not Like Drug Coverage in Under-65 Health Plans
Until you transitioned your health care to Medicare, you were likely covered by employer group health (EGH) or Affordable Care Act (ACA, aka, Obamacare) coverage via the healthcare.gov health insurance marketplace. Under those plans, if the co-pay for a medication is $10 in January, it is still $10 in June and again in December. That IS NOT how Medicare drug plans work. Instead, PDPs introduce what are called "stages of coverage" as illustrated in the lead graphic for this post.
Stages of Coverage
The important thing to remember here is that, as you and the plan spend money on your prescription drugs, the plan is keeping track of those costs, referred to as true -out-of-pocket costs (TrOOP). TrOOP is what triggers the different stages of coverage. If the TrOOP reaches a stage-triggering threshold, you move into the next stage of drug coverage, and the cost of your drugs to you changes. The stages are:
Deductible stage. For 2025, the maximum deductible is $590 but your deductible may be less depending on how your plan is structured. Most stand-alone PDPs use the maximum deductible; most MAPDs have a lower or no deductible. On many plans, the deductible does not apply to tier 1 and tier 2 drugs, so unless you're taking name brand drugs, you are shielded from the deductible. Anything you pay toward your deductible counts toward the $2,000 maximum out-of-pocket cap for the plan year.
Initial coverage stage. You stay in the initial coverage stage until your TrOOP reaches $2,000 in 2025. Many Medicare beneficiaries will never leave the initial stage of coverage. In this stage, you are paying usually very reasonable co-pays for lower tier drugs.
Catastrophic stage. Once TrOOP reaches $2,000 in 2025, you leave the initial coverage stage and enter the catastrophic stage. In this stage, you pay nothing for your drugs. The cost of your drugs is covered by the plan, the manufacturer and Medicare.
Is This Exactly What My Part D Plan Will Look Like in 2025?
The plan structure as presented here is what CMS refers to as the Part D defined standard benefit and serves as a reference for all Part D plans offered in plan year 2025. It forms the actuarial basis for what your drug coverage will look like. In other words, Part D plans must offer either the defined standard benefit or an alternative equal in value (“actuarially equivalent”) and can also provide enhanced benefits. While all plans will adhere to the three payment stages of the standard benefit plan and will also feature the $2,000 annual cap on out-of-pocket costs, plans have leeway to adjust things like deductible, co-pay and coinsurance amounts as long as the resulting plan design is equal in value to the defined standard benefit plan. Specific details of the Part D plan designs for 2025 are available at Medicare.gov.
New for 2025: The Medicare Prescription Payment Plan
If you have high drug costs, you may benefit from the Medicare Prescription Payment Plan, or M3P as I'll refer to it here. Think of it as an interest-free installment loan to pay for your prescription drugs over the course of the plan year. For details, see my article: All About the Medicare Prescription Payment Plan
Cost Containment Measures Used by All Medicare Drug Plans
The following cost containment measures are used in all Medicare Part D drug plans including both standalone PDPs and the drug plans included in many Medicare Advantage plans:
Prior Authorization: Prior authorization limits coverage of a drug to patients who meet certain requirements. Before you can fill the prescription, the prescriber (your doctor) must contact your plan to show the drug is medically necessary and that you meet certain requirements.
Step Therapy: Step therapy is a type of prior authorization. In most cases, you must first try a certain, less expensive drug on the plan’s formulary that’s been proven effective for most people with your condition before you can move up a “step” to a more expensive drug.
Quantity Limits: For safety and cost reasons, plans may limit the amount of prescription drugs they cover over a certain period of time.
When researching different drug plans, it's possible to see in advance if a drug you are taking is subject to any of these cost containment measures.
A Word About IRMAA
If your income is such that CMS levies an income-related monthly adjustment amount (IRMAA), that amount will be collected by CMS directly by way of a monthly bill. Note that the IRMAA charge is not part of the drug plan premium. (At the time of writing, the 2025 IRMAA chart has not been published. When it is, it will be linked here for reference.)
More About the Impact of Medicare Part D Changes in 2025
For more information about how these changes to Medicare Part D may impact your Medicare experience in 2025, see my post: What does the $2,000 annual prescription drug cost cap in 2025 mean for you?
Want More Details?
If you're the type that likes to get into details, then this KFF article is definitely for you: Changes to Medicare Part D in 2024 and 2025 Under the Inflation Reduction Act and How Enrollees Will Benefit
Comentarios