We are heading into the very last week of the Annual Election Period! It’s been a busy season, and probably the most important Medicare enrollment period in many years. We’ve seen many changes to Medicare Part D and Medicare Advantage plans this year, and these changes will likely have a significant impact on your healthcare costs.
If you’re a seasoned Medicare beneficiary, you might be familiar with how Medicare Part D works. However, even if that’s the case, there are major changes coming in January, so read on to be prepared for how Medicare Part D works in 2025.
What Is Medicare Part D?
Medicare Part D is the portion of Medicare that covers prescription drugs. Private insurance carriers sell Part D plans, but they are all still regulated by the Centers for Medicare and Medicaid Services (CMS). In addition, some Medicare Advantage plans include prescription coverage. When prescription coverage is included in a Medicare Advantage plan, it works just like a standalone Part D plan would.
While Medicare Part D isn’t mandatory, it does come with a late enrollment penalty if you don’t enroll as soon as you are eligible. For this reason, we recommend all of our clients enroll in prescription coverage, even if they aren’t taking any medications. Fortunately, even with all the changes coming in 2025, there are still very affordable options for beneficiaries who are not taking any medications.
Medicare Part D Coverage Phases in 2025
In recent years, Part D plans had four coverage phases. Not every beneficiary went through all four phases during the year, but people who were taking expensive medications often did. These people frequently found themselves in what was known as the “donut hole” or “coverage gap,” where they had to pay a significant portion of their medication costs. It was not uncommon to pay several thousand dollars for prescriptions over the course of the year.
That all changes in 2025.
Starting in January, the donut hole will no longer exist. Instead, there will only be four coverage phases. Let’s go through each of them now.
The Deductible Phase: Everyone starts here, and it’s just as it sounds. Many Part D plans have an annual deductible. Each year, CMS sets a standard deductible. In 2025, the standard deductible is $590. The insurance carriers may choose to set lower deductibles, but none will have a higher deductible than $590. You pay 100% of your prescription costs until you reach that amount.
Now, that isn’t always the case with every medication. Every Part D plan (even those within a Medicare Advantage plan) has a drug formulary. The formulary is a list of covered medications organized into tiers. Medications in lower tiers (usually tiers one and two) are the more common, generic medications. Medications in higher tiers (usually tiers four and five) are the more specialized, name-brand medications. Many Part D plans will waive the deductible for drugs in the lower tiers.
The Initial Coverage Phase: Once you meet your deductible, you’ll enter the initial coverage phase. During this phase, you will pay whatever copay or coinsurance cost is set by your plan. On average, this usually amounts to about 25% of the drug cost. (Again, for drugs in lower tiers, this may be much less than the average of 25%.) Your plan will pay about 65% of the cost, and the manufacturer will pick up the remaining 10%.
The Catastrophic Coverage Phase: Starting in 2025, you will enter catastrophic coverage after you’ve paid a total of $2,000 (including your deductible) for covered medications. In years past, you would have entered the donut hole before going into catastrophic coverage.
During the catastrophic coverage phase, you will not pay anything for covered medications. Instead, your plan pays 60% of the cost, the manufacturer pays 20%, and Medicare pays 20% of the cost.
These are excellent changes, especially for those who are taking more expensive medications. Starting next year, every Part D enrollee will have a $2,000 cap on their prescription costs.
Of course, we have seen some negative side effects from this new law. To make up for higher costs on the part of the carriers, many insurance companies are increasing their premium or removing expensive medications from their formularies. For these reasons, it’s important that everyone have their Medicare plans reviewed during this Annual Election Period. If you miss the December 7 deadline, you will not be able to make any changes until the next AEP.
The exception to this is if you are already enrolled in a Medicare Advantage plan. In that case, you may make one change during the Medicare Advantage Open Enrollment Period which begins on January 1 and ends on March 31.
Don’t Skip the Annual Election Period
We still have a few days left during this year’s Annual Election Period. If you have not had your Medicare Part D or Medicare Advantage plans reviewed, it is crucial that you call today to schedule your appointment! We will review your current medications and providers and find out if your current plan is still the best fit for 2025, or tell you if there is a plan that will better fit your healthcare needs and budget. It doesn’t cost a thing to work with our advisors, so call today to get peace of mind for 2025!
