Medicare Prescription Drug Plan (Part D) FAQs

Drug plans have changed significantly for 2025.

Out-of-pocket drug spending for covered medications are capped at $2,000; this number will be indexed starting in 2026.

The coverage gap (aka “donut hole”) phase has been eliminated. This means that copays/coinsurance levels will remain unchanged from the initial coverage level until the $2,000 cap is met. Once that cap is met, there will be no cost for covered medications to the beneficiary.

This means that all plans have a maximum of three different phases: (1) the deductible phase, if any; (2) the initial coverage level phase; and (3) the catastrophic phase.

The $2,000 out-of-pocket calculation will be based on a True Out-Of-Pocket Costs (TrOOP) calculation which works differently than the way TrOOP was calculated previously.

TrOOP is calculated based on two different formulas: it will first be calculated in accordance with the deductibles, copays, and coinsurance for the plan you have selected [this is almost always an “alternative benefits” structure, as few plans will choose to use the “standard benefits” model (see next sentence)]. Secondly it will calculate based on the “standard benefits” model, which assumes your plan has a $590 deductible for all tiers and that all tiers are paid at 25% coinsurance. Both calculations will consider the chosen plan’s formulary when making these calculations. The $2,000 catastrophic level is considered met when EITHER model produces a calculation of $2,000 in out-of-pocket expenses. This is very complicated to explain, but the point is that you can be considered as having met the $2,000 level when your actual drug expenses under your chosen plan are less than $2,000.

Manufacturer’s discounts are no longer included in the TrOOP calculation. Drugs must be purchased through a network pharmacy or out-of-network in accordance with the plan’s out-of-network policy (e.g., emergencies). Drugs must be on the plan’s formulary or the beneficiary must have a formulary exception for that drug.

Additional details on TrOOP calculations are included in this article.

Carriers also have the option of offering “enhanced” benefits such as folic acid, 50,000 units of Vitamin D, and sildenafil/tadalafil. Payments a beneficiary makes for an enhanced medication will not count as TrOOP, and beneficiaries will pay the same for an “enhanced” medication during all drug plan phases.

Part D enrollees will have the option of spreading out their out-of-pocket costs over the year rather than face high out-of-pocket costs in any given month. This is called the Medicare Prescription Payment (M3P) Plan. Under this program beneficiaries will have the option of spreading out their prescription payments over the year (this is called “smoothing).

Beneficiaries who expect to reach $2,000 in out-of-pocket costs or who expect to buy an expensive medication ($600 or more) are most likely to be those who benefit under this plan. Beneficiaries will need to enroll in this program and, if enrolled, will pay their medication costs to the carrier rather than the pharmacy.

Also, the share of Medicare Part D drug costs paid by plans, drug manufacturers, and Medicare will change. Most significantly, carriers will pay 65% of the cost of drugs in the initial coverage phase (instead of 75% in 2024) but will pay 60% during the catastrophic phase (instead of 20%) in the catastrophic phase in 2025.

Because of these changes, beneficiaries will see changes in their Part D plans in 2025. Changes could include a deductible of up to $590 for some or all drug tiers, and the copays or coinsurance in some or all tiers could change (including moving from a copay to a coinsurance in a particular tier). Premiums for stand-alone Part D drug plans will increase in many instances, and it is also possible drugs will be reclassified into different tiers and that changes in utilization management requirements (e.g., quantity limits or prior authorization) will be made for some plans.

Medicare Advantage plans that include drug coverage (referred to as Medicare Advantage Prescription Drug plans) must also comply with the Inflation Reduction Act requirements. Many MAPD plans will not have deductibles in their drug plans, but many plans are changing copays or coinsurance (or changing from copays to coinsurance for particular tiers) for some or all non-generic drug tiers.

See the following Kaiser Family Foundation chart for changes between 2023, 2024, and 2025 regarding share of Medicare Part D drug costs paid by enrollees, Plans, Drug Manufacturers, and the government (i.e., Medicare) in each drug phase.

Please see this article from the Kaiser Family Foundation for a more detailed summary of the changes made by the Inflation Reduction Act for 2024 and 2025.

As explained in FAQ 1, all drug plans now have a maximum of three different phases: (1) the deductible phase, if any: (2) the initial coverage level phase: and (3) the catastrophic phase.

For 2026, the “standard benefits” model will have a deductible of $615, 25% coinsurance for all drug tiers, and out-of pocket drug spending for coverage medications will be capped at $2,100 (which is indexed for inflation). Once a person has spent $2,100 for covered medications s/he will pay nothing further for medications covered under the plan.

The $2,100 out-of-pocket calculation will be based on a True Out-Of-Pocket Costs (TrOOP) calculation which works differently than the way TrOOP was calculated before 2025.

TrOOP is calculated based on two different formulas: it will first be calculated in accordance with the deductibles, copays, and coinsurance for the plan you have selected [this is almost always an “alternative benefits” structure, model, as few plans will choose to use the “standard benefits” model (see next sentence)]. Secondly it will calculate based on the “standard benefits” model, which assumes your plan has a $615 deductible for all tiers and that all tiers are paid at 25% coinsurance. Both calculations will consider the chosen plan’s formulary when making these calculations. The $2,100 catastrophic level is considered met when EITHER model produces a calculation of $2,100 in out-of-pocket expenses. This is very complicated to explain, but the point is that you can be considered as having met the $2,100 level when your actual drug expenses under your chosen plan are less than $2,100.

Manufacturer’s discounts are no longer included in the TrOOP calculation. Drugs must be purchased through a network pharmacy or out-of-network in accordance with the plan’s out-of-network policy (e.g., emergencies). Drugs must be on the plan’s formulary or the beneficiary must have a formulary exception for that drug.

Additional details on TrOOP calculations are included in this article.

Carriers also have the option of offering “enhanced” benefits such as folic acid, 50,000 units of Vitamin D, and sildenafil/tadalafil. Payments a beneficiary makes for an enhanced medication will not count as TrOOP, and beneficiaries will pay the same for an “enhanced” medication during all drug plan phases.

Part D enrollees will have the option of spreading out their out-of-pocket costs over the year rather than face high out-of-pocket costs in any given month. This is called the Medicare Prescription Payment (M3P) Plan. Under this program beneficiaries will have the option of spreading out their prescription payments over the year (this is called “smoothing).

Beneficiaries who expect to reach $2,100 in out-of-pocket costs or who expect to buy an expensive medication ($600 or more) are most likely to be those who benefit under this plan. Beneficiaries will need to enroll in this program and, if enrolled, will pay their medication costs to the carrier rather than the pharmacy.

The following changes will be implemented for the first time in 2026:

• Negotiated prices will apply for these ten drugs initially selected for the first cycle of negotiations for initial price applicability year 2026.
• During the initial coverage phase, CMS will pay Part D plans a subsidy of 10% for drugs selected for price negotiations during the price applicability period.
  • The Part D sponsor typically pays 65% for applicable drugs and drugs selected for negotiation (i.e., the ten drugs listed above) and 75% of the cost of all other Part D covered drugs
  • The manufacturer, through the manufacturer discount program, typically pays 10% of the cost of applicable drugs
  • Medicare (CMS) pays a subsidy of 10% of a drug’s negotiated price for selected drugs during the period when the negotiated price applies.
• During the catastrophic phase, Medicare (CMS) will pay Part D plans 40% reinsurance for drugs selected for price negotiations during the price applicability period.
  • The Part D sponsor typically pays 60% of the cost of all Part D covered drugs
  • The manufacturer pays a discount typically equal to 20% for all applicable drugs (i.e., the 10 drugs selected for negotiation)
  • Medicare (CMS) pays a reinsurance subsidy of 20% for all applicable drugs (i.e., the ten drugs selected for negotiation) and 40% for all other Part D covered drugs during a price applicability period

The CMS subsidy and reinsurance changes do not impact beneficiary cost-sharing percentages (beginning in plan year 2025 these were substantially reduced by eliminating the coverage gap and capping beneficiary out-of-pocket costs. However, they will affect the price of the negotiated drugs.

Unless you're eligible for a Special Election Period, you must enroll in a Medicare Advantage Prescription Drug Plan or Medicare drug coverage (Part D):

• During your Initial Coverage Period (the period beginning three months before and ending three months after your 65th birthday month); or
• During the Annual Election Period which runs from October 15-December 7 for a January 1 enrollment.

Note: Medicare begins the first of the preceding month for individuals whose birthday is the first day of the month.

Some Medicare Advantage plans (called "MAPD" plans) include prescription drug coverage while others (called "MA" or "MA Only" plans) do not.

If you purchase a Medicare Advantage HMO or PPO plan without prescription drug coverage, you CAN'T purchase a separate Part D plan. You can purchase a separate Part D plan with a PFFS (Private Fee for Service plan) that doesn't provide drug coverage and with Medicare Savings Account plans and Cost plans (Cost plans are available on a very limited basis and are not available in Florida).

You can also purchase separate Medicare drug coverage (Part D) with a Medicare Supplement plan or with Original (Fee for Service) Medicare (i.e., without enrolling in either a Medicare Supplement or Medicare Advantage plan).

Although they must meet minimum Federal guidelines, Medicare Advantage Prescription Drug and separate Medicare drug coverage (Part D) differ markedly between carriers, and one of the most important differences is which drugs are covered and which are not. [There are 35 therapeutic categories of drugs, and carriers are required to include at least two drugs in each category, except they are required to include all drugs in these six categories: Antirerovirals (HIV/AIDS treatments); antidepressants; antipsychotic medications; anticonvulsive treatments for seizure disorders; immunosuppressant drugs; and antineoplastics (certain anticancer drugs) unless one of these drugs is covered under Part B of Medicare.

Each carrier provides a formulary that lists which drugs are covered under that plan and which copay or coinsurance tier the drug falls into. Beneficiaries should always check the formulary to determine if their drugs are covered--and at which copay pay or coinsurance rate--before purchasing a plan. It's also a good idea to review your Medicare Advantage Prescription Drug or separate Medicare drug coverage (Part D) every year to see if your plan covers the medications you need now and may need in the upcoming year.

Be sure to talk to your doctor to see if you're taking the lowest cost medications available to you.

Because Part D plans can be designed to be actuarially equivalent to the standard benefit model (see FAQ 3) , these plans can have no or lower deductibles than required by the standard benefit model, copays and/or coinsurance can vary, and there can be other differences in plan design as well. Specific coverage will vary from plan to plan, so read your documentation carefully and make sure to check out which of your drugs are included in your plan’s formulary.

Medicare (CMS) has a formulary finder on their website that permits beneficiaries to enter their medications, dosages, and frequency of use and then lists the carriers that cover these medications in their formulary. After the beneficiary enters his or her drugs into the formulary finder there are various options as to how to present the findings: i.e., list in order of plans with the lowest premium; list in order of lowest premium AND cost of drugs; and list in order of plans with the lowest deductible.

Note: We use a sophisticated formulary finder called Search and Save. Our tool uses four different feeds from Connecture (Medicare.gov also uses data supplied by Connecture but the Search and Save system utilizes more extensive data than that used by Medicare.gov.) We can input clients’ medication data and determine which Medicare Advantage or separate Medicare Part D coverage plan has the lowest drug costs (considering both premium and the cost of the drugs) for clients and prospects.

Please contact us at 561-734-3884 or 877-734-3884 for help in determining your outpatient medication costs.

Plans are required to include medication therapy management including step therapy, quantity limits and prior authorization. Part D sponsors may substitute generic drugs for brand name drugs if the generic drugs have the same or lower cost sharing and certain conditions are met. In accordance with the Comprehensive Addiction and Recovery Act (CARA), plans may impose certain limitations to manage utilization for beneficiaries who are at risk of misusing or abusing frequently abused drugs, such as opioids.

You may owe a late enrollment penalty (LEP) if, at any time after your initial enrollment period is over there is a period of 63 or more continuous days when you don't have Part D or other creditable coverage (i.e. coverage that, as a minimum, meets the Part D standard benefit model).

The late enrollment penalty is assessed for EACH month that you haven't had creditable drug coverage.

The amount of the penalty changes annually and is calculated by multiplying 1% of the “national base beneficiary premium” ($36.78 for 2025) by the number of full, uncovered months a beneficiary did not have Part D or “creditable coverage.” This penalty applies ONLY when an individual who did not have Part D or “creditable coverage” enrolls in a Part D plan (including a Medicare Advantage Prescription Drug Plan). Note: the Inflation Reduction Act puts a cap of 6% regarding the percentage the national base beneficiary premium can increase from year to year. The 2025 number has been capped at 6% above the 2024 number, which was $34.70.

Since 2011, a beneficiary’s Part D (outpatient drug coverage) monthly premium has been affected by income. This income-related monthly adjustment amount (referred to and abbreviated as “Part D IRMAA”) affects roughly 8% of Medicare beneficiaries with Part D coverage.

Individuals affected by the Part D IRMAA pay the adjustment amount in addition to their Part D premium. Payment is deducted from Social Security checks if the beneficiary is receiving Social Security. Otherwise, Social Security bills the beneficiary directly for these amounts.

For 2025, individuals filing single returns (as well as married individuals who file separate returns) with modified adjusted gross income over $106,000 and joint filers with modified adjusted gross income over $212,000 pay Part D IRMAA. [Note: Part D IRMAA applies both to Medicare Advantage Prescription Drug Plans and separate Medicare drug coverage (Part D)]. LEARN MORE about how IRMAA is calculated.

IRMAA is calculated annually based on income reported on the tax return from two years’ previously. If no return has been filed, then they’re based on the most recent income tax return that is on file with the IRS. The income levels upon which IRMAA is based are adjusted for cost-of-living, and the various levels in the charts are periodically changed legislatively as well.

IRMAA Premiums for 2025

See this chart for 2025 IRMAA Part D premiums.

This page from medicare.gov contains a number of suggestions about lowering your drug costs:

• Determine if you qualify for the “extra help” (low income subsidy) program and apply online using the link provided if you think you may qualify
• Other ways to lower your prescription drug costs
• What to do next

In addition, look into patient assistance programs at www.rxassist.org (this site contains a wealth of other useful information); shop around for the best prices on medications; tread carefully using current credit cards (look closely before choosing to use a medical credit card), and talk to your physician about switching to generics.

For a complete listing of plans available in your service area please contact 1-800-Medicare (TTY users should call 1-877-486-2048) or go to www.medicare.gov. Your copy of Medicare & You 2025 also contains a listing of 2025 plans available in your general area. You can also contact us at 877-734-3884 (TTY: 711) for this information. (Medicare & You 2025 is published and mailed to all those enrolled in Medicare (except for the most recent enrollees) in late September. Note: the linked version of Medicare & You included here does not contain listings of plans in your general area.)