Part D
Part D of Medicare covers prescription drugs for Medicare beneficiaries. Medicare Part D is not a part of Original Medicare, but it is a supplemental coverage type that can normally only be accessed by Original Medicare members. Part D plans are sold by private insurance companies, unlike Part A and Part B benefits which are administered by the federal government.
What’s New in 2025
Because of changes under the Inflation Reduction Act (IRA) and the CMS Part D redesign, the structure of Medicare Part D in 2025 is notably simpler.
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The coverage gap (“donut hole”) phase is eliminated.
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There is a new annual out-of-pocket cap for beneficiaries’ spending on covered Part D drugs: $2,000.
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Some drugs—such as certain insulins and vaccines—are exempt from the deductible under the standard benefit.
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Because of these changes, Part D now has three phases (instead of four).
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The new Medicare Prescription Payment Plan lets you spread costs out over the year instead of paying large amounts at the pharmacy.
Let’s Talk About Each Of The Phases.
Deductible
This is the phase in which you pay 100% of the negotiated cost for your covered prescription drugs (i.e. your plan has not yet begun sharing costs). In 2025, no plan can set the deductible above $590. Some plans may use a lower deductible or even none at all. Also, certain drugs, like insulins and some vaccines, may be excluded from the deductible, meaning you won’t pay full cost for those before the coverage phase begins.
Initial Coverage
Once you satisfy the deductible (if your plan has one), you enter the Initial Coverage phase. Here, you pay 25% coinsurance (i.e. one quarter) of the cost of covered drugs, while your plan covers the remainder (and, for some drugs, manufacturers contribute under the Manufacturer Discount Program). You will stay in this phase until your out-of-pocket spending reaches $2,000 for the year (including your deductible and your coinsurance).
Catastrophic Coverage
When your cumulative out-of-pocket spending on covered drugs hits $2,000, you enter the Catastrophic phase. At that point, you have no further cost sharing for covered Part D drugs for the rest of the year, your drug costs are fully covered (i.e. you pay $0) under the standard benefit design.
Insulin Costs
The $35 monthly cap for covered insulin continues in 2025. Importantly, this cap applies in all phases, including after reaching catastrophic coverage. However, your insulin must be on the plan’s formulary for this protected cost to apply.
Medicare Payment Plan
Allows beneficiaries to spread their out-of-pocket prescription drug costs over the year rather than paying the full amount at the pharmacy counter. Under this program, the insurance plan pays the pharmacy directly and then sends the beneficiary a monthly bill for their share of the costs. This makes drug expenses more predictable and manageable throughout the year, but it is not automatic beneficiaries must choose to opt in.