What is Medicare Part D? Prescription drug coverage and phases

What are the phases of Medicare prescription drug plan coverage in 2025?

Like with most insurance plans, when you have a Medicare Part D plan, you’ll go through phases, or stages—depending on whether you’ve met your deductible or reached the out-of-pocket maximum.

In 2025, as part of the Inflation Reduction Act, the coverage gap phase (also known as the “donut hole”) will be eliminated. Instead, there will be a lower $2,000 out-of-pocket maximum on Part D prescription drug costs for the year. Here’s how it will work in 2025:

Phase 1: Deductible

When you start using your prescription drug coverage, you’ll pay 100% of your prescription costs until you meet your plan’s annual prescription deductible, if there is one. $590 is the maximum deductible amount Part D plans can charge in 2025.

Phase 2: Initial coverage

Next, you’ll pay a copay or coinsurance for each prescription until your and your plan’s spending on prescriptions reaches the $2,000 out-of-pocket maximum.

Phase 3: Catastrophic coverage

Once you meet the $2,000 out-of-pocket maximum, you enter catastrophic coverage, and you’ll pay nothing for your covered drugs for the rest of the year.

What is the Part D late-enrollment penalty?

If you don’t choose a Medicare Part D plan when you’re eligible and don’t have other creditable drug coverage, there will be a permanent penalty added to your Part D premium for every month you could have enrolled but didn’t. So, it may pay to enroll during your Initial Enrollment Period even if you don’t use prescription drugs now.

It’s important to understand this potential penalty. If you’re nearing 65 and have any questions, call us. We can chat through your unique situation.