Key Takeaways
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Enrolling in Medicare Part D is optional, but missing your initial opportunity can result in lifelong penalties and higher costs.
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In 2025, Part D includes significant improvements, like a $2,000 out-of-pocket cap, but costs can still add up depending on your medications and pharmacy choices.
What Part D Actually Covers
Medicare Part D covers prescription drugs, both brand-name and generic, through standalone drug plans or as part of a Medicare Advantage plan that includes drug coverage. Coverage is standardized, but the list of covered drugs (called a formulary), pharmacy networks, and out-of-pocket costs vary by plan.
Plans must include coverage for at least two drugs in each therapeutic category and class. However, they are not required to cover every medication. You’ll want to check whether your prescriptions are covered and how much they cost under each plan before enrolling.
Enrolling Is Not Automatic
Unlike Medicare Parts A and B, which many people are automatically enrolled in at age 65 if they’re receiving Social Security benefits, Medicare Part D requires you to take action. You must either:
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Enroll in a standalone Part D plan
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Choose a Medicare Advantage plan that includes drug coverage
If you don’t enroll during your Initial Enrollment Period (IEP)—which spans 7 months around your 65th birthday—you may face a late enrollment penalty.
What the Late Enrollment Penalty Looks Like
The penalty for delaying Part D enrollment is ongoing and permanent. For each month you delay, you pay an additional 1% of the national base beneficiary premium, which in 2025 is around $34.70. This gets added to your monthly premium for as long as you have drug coverage.
For example, if you delayed enrollment for 12 months, you’d pay roughly 12% more each month. Even if you later switch plans, that penalty sticks with you.
The Standard Structure of Part D in 2025
Medicare Part D has four main phases in 2025:
1. Deductible Phase
You pay 100% of your drug costs until you meet the deductible. The maximum deductible this year is $590.
2. Initial Coverage Phase
After meeting the deductible, you share costs with your plan. You usually pay a copayment or coinsurance until your total drug spending reaches $5,030.
3. Catastrophic Coverage Phase Removed
Previously, after reaching a certain out-of-pocket threshold, you entered catastrophic coverage with lower costs. In 2025, that phase is gone. Instead, once your total out-of-pocket costs reach $2,000, your plan covers 100% of covered drug costs for the rest of the year.
This change is significant—it eliminates the so-called “donut hole” and provides financial relief for those who take expensive medications.
Drug Formularies and Tier Pricing
Each Part D plan uses a formulary to organize covered medications into cost tiers:
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Tier 1: Preferred generics (lowest copay)
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Tier 2: Non-preferred generics
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Tier 3: Preferred brand-name drugs
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Tier 4: Non-preferred brand-name drugs
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Tier 5: Specialty drugs (highest cost)
A medication’s tier determines what you pay out of pocket. Plans can change their formularies and tier assignments each year, which is why reviewing your plan annually is critical.
Pharmacy Networks Matter
Your costs under Part D also depend on the pharmacy you use. Most plans have networks that include preferred and standard pharmacies.
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Preferred pharmacies offer the lowest copays.
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Standard pharmacies are in-network but may cost more.
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Out-of-network pharmacies typically aren’t covered unless in an emergency.
Using a preferred network pharmacy can save you hundreds annually, depending on your prescriptions.
Part D and Medicare Advantage
If you enroll in a Medicare Advantage plan that includes drug coverage, you don’t need a separate Part D plan. However, not all Medicare Advantage plans include drug coverage. If yours doesn’t, and you try to enroll in a standalone Part D plan, you’ll be automatically disenrolled from your Advantage plan.
You can only switch between types of coverage during certain times of the year:
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Initial Enrollment Period (IEP)
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Annual Enrollment Period (October 15 to December 7)
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Medicare Advantage Open Enrollment (January 1 to March 31)
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Special Enrollment Periods (triggered by life events such as moving or losing employer coverage)
Prescription Payment Plan: New in 2025
Another notable update in 2025 is the introduction of the Medicare Prescription Payment Plan, which allows you to spread your out-of-pocket prescription costs across the calendar year in equal monthly payments.
This optional feature helps smooth out spikes in drug spending, especially at the start of the year when deductibles reset. To use this feature, you must opt in through your drug plan.
Coordination with Other Coverage
If you have other drug coverage, such as from the VA, TRICARE, or a retiree plan, you might not need Part D. But that coverage must be considered creditable—meaning it’s expected to pay at least as much as standard Medicare drug coverage.
If it’s not creditable and you delay Part D enrollment, you’ll still face the penalty. Your provider should send you a notice each year indicating whether your coverage qualifies.
Common Enrollment Mistakes to Avoid
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Waiting too long: Missing your IEP or a Special Enrollment Period means you may have to wait until the next Annual Enrollment Period.
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Assuming all drugs are covered: Always review a plan’s formulary before enrolling.
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Ignoring pharmacy restrictions: Using an out-of-network pharmacy could lead to unexpected bills.
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Not comparing plans yearly: Even if your plan worked last year, changes in costs or coverage could make it less suitable this year.
Why You Still Have Out-of-Pocket Costs
Even with the $2,000 cap, Part D isn’t free once you enroll. You may pay:
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Monthly premiums
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Annual deductible (up to $590 in 2025)
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copayments or coinsurance for drugs
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Higher prices for out-of-network pharmacies or non-formulary drugs
Some beneficiaries may also pay more due to income-related monthly adjustment amounts (IRMAA), which apply to those with higher incomes.
Why Reviewing Your Plan Every Year Matters
Part D plans are allowed to change every year:
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Premiums can increase or decrease
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Formularies can drop or add medications
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Pharmacy networks can shift
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Tier assignments may change, affecting your cost-sharing
You’ll receive an Annual Notice of Change (ANOC) each fall outlining these updates. Reviewing this notice is critical. If you do nothing, you’ll be re-enrolled in the same plan, even if it’s no longer the best fit.
Understanding the Long-Term Value of Part D
Prescription drug coverage may not seem urgent if you’re healthy now. But it protects you from future high drug costs and gives you peace of mind. Late enrollment penalties and limited switching windows make it difficult to correct mistakes later.
Being proactive—enrolling on time, choosing the right plan, and reviewing it annually—can save you money and help you avoid coverage gaps.
Protect Your Health and Your Wallet
Part D is no longer optional in practice if you want to avoid penalties and manage medication costs wisely. It’s a crucial piece of your Medicare coverage puzzle. Take the time to evaluate your drug needs, compare plans, and use available tools like the Prescription Payment Plan.
If you need help understanding your options, get in touch with a licensed insurance agent listed on this website. They can walk you through your choices based on your medications, location, and budget.
