The Medicare Part D $2,000 Out-of-Pocket Limit Starts in 2025
Key takeaways:
Medicare Part D enrollees have a $2,000 out-of-pocket cap for covered medications in 2025. After your spending hits that amount, you enter the catastrophic coverage phase and your plan pays 100% of the cost of covered medications for the rest of the year.
In 2024, Part D enrollees had to spend $8,000 to reach the catastrophic coverage phase. The drop to $2,000 in 2025 will reduce prescription expenses for millions of older adults and people with disabilities, but this cap won’t help Part D enrollees who don’t spend more than $2,000 out of pocket annually on medications.
The $2,000 out-of-pocket limit will be adjusted annually in the future based on inflation.
Table of contents
For people with Medicare Part D prescription plans, reaching the catastrophic coverage phase — when they face no more out-of-pocket costs — meant spending at least $8,000 in 2024 on covered medications. That amount drops to $2,000 in 2025, thanks to a provision in the Inflation Reduction Act of 2022 intended to reduce prescription medication costs for Part D enrollees.
Medicare Part D Out-of-Pocket Limit for 2025
For Part D enrollees — especially those with high out-of-pocket costs — affording medications will be easier in 2025. That’s when the new Medicare Part D $2,000 out-of-pocket limit begins. The coverage gap known as the “donut hole” ends on December 31, 2024. That means once you meet your deductible (if you have one) and spend $2,000 out of pocket, you enter the catastrophic coverage phase where your plan now pays 100% of the cost of covered medications. This cap applies to stand-alone Part D plans as well as prescription coverage included in Medicare Advantage (MA) plans.
Many enrollees who are accustomed to reaching that phase — previously, when they hit $8,000 in spending on covered medications — are expected to find relief from spending on prescriptions earlier in the year.
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Changes to Out-of-Pocket Threshold
The $2,000 limit comes along with a Part D plan redesign that eliminates the “donut hole” — which is also known as the coverage gap. Part D plans now have three phases instead of four.
Medicare Part D phases and costs: 2024 and 2025
Medicare Part D phase | 2024 cost | 2025 cost |
|---|---|---|
Deductible | You pay all covered prescription costs until you meet your deductible, which can’t exceed $545. (Some plans have no deductible.) | You pay all covered prescription costs until you meet your deductible, which can’t exceed $590. (Some plans have no deductible.) |
Initial coverage | Your plan starts paying its share of your prescription costs, but you are responsible for copays and coinsurance until your out-of-pocket expenses reach $5,030. This amount may include manufacturer discounts and other payments made on your behalf. | Your plan starts paying its share of your prescriptions costs, but you are responsible for copays and coinsurance until your out-of-pocket expenses reach $2,000. This amount does NOT include manufacturer discounts, but it may include what’s paid on your behalf by the Extra Help low-income subsidy program. |
Coverage gap or “donut hole” | You reach this phase with $5,030 spent and won’t exit to catastrophic coverage until your out-of-pocket expenses reach $8,000. In this phase, you pay no more than 25% of the cost of brand-name and generic medications. | The coverage gap is eliminated in 2025, and the out-of-pocket maximum is $2,000. |
Catastrophic coverage | After you spend $8,000 out of pocket, your plan pays 100% for covered medications for the rest of the year. | After you spend $2,000 out of pocket, your plan pays 100% for covered medications for the rest of the year. You now have the option to pay your out-of-pocket costs throughout the year — instead of up front at the pharmacy — by enrolling in the new Medicare Prescription Payment Plan. |
Other Part D changes in 2025
In addition to the $2,000 out-of-pocket cap, Part D will have two other major updates in 2025:
Donut hole eliminated: Part D plans will no longer have a donut hole, or coverage gap. After you meet your deductible, which can’t exceed $590, you are responsible for your copays and coinsurance for covered medications until you reach the $2,000 out-of-pocket limit.
Medicare Prescription Payment Plan: Starting in 2025, anyone with a Medicare prescription plan will have the option to make payments for their out-of-pocket medication costs instead of paying up front at the pharmacy. With the new Medicare Prescription Payment Plan, your covered medication costs will be spread out across the year.
How to prepare for Part D changes in 2025
During Medicare open enrollment from October 15 to December 7, 2024, you can make changes to your Medicare Part D coverage. If you have an MA plan with prescription coverage or a stand-alone Part D plan, you can start by reviewing your Annual Notice of Change (ANOC). MA plans and stand-alone Part D plans must send you this document by September 30 every year. The ANOC can help you compare updates to your current plan for the 2025 coverage year.
Closely review the formulary (the list of covered medications) and changes to your plan’s network of pharmacies. Whether you stick with your current plan or choose a new one, make sure your 2025 coverage includes the medications you take and that you can access them at costs that are affordable for you.
Also consider coverage restrictions such as prior authorization, step therapy, and quantity limits, which are common with MA plans that include prescription coverage. These restrictions can make getting covered medications more difficult.
Medicare prescription payment plans are available in 2025. As of January 1, 2025, anyone with a Medicare prescription plan will have the option to make payments for their medication costs, spread out across the year, instead of paying in full at the pharmacy each time they pick up a medication.
Signing up late for Medicare Part D can cost you. Sign up for a Medicare prescription medication plan when you’re first eligible, or you will probably face the Part D late-enrollment penalty.
Compare coverage when enrolling in Medicare Part D. You can use the Medicare Plan Finder to locate and compare your options for prescription coverage that includes the medications you take.
Signing up for the Medicare Prescription Payment Plan
Here are some details about how the Medicare Prescription Payment plan works:
Participation is voluntary, and you must opt in.
There is no cost to participate.
If you join during Medicare open enrollment in 2024, which runs through December 7, your payment plan participation will begin on January 1, 2025. You can also enroll in the payment plan at any time in 2025.
You must sign up annually to participate in the program.
You still pay your Part D premium, in addition to your monthly bill for out-of-pocket medication costs that are spread over the year by the payment plan.
You will not be charged interest or fees on late payments, but you can be dropped from your plan if you don’t pay what’s due each month. Leaving the payment plan doesn’t disenroll you from your Part D coverage.
You can enroll retroactively if you have an urgent prescription to fill.
You can leave the plan at any time. If you owe a balance, you can pay the full amount at once or continue to receive a monthly bill.
Your payment plan enrollment ends if you switch to another prescription plan.
Every prescription plan will have a grievance process, which allows you to address your concerns if you are dissatisfied with your payment plan.
The bottom line
Managing Part D costs will be easier for many people in 2025. That’s because Medicare prescription plans now have a $2,000 out-of-pocket cap. After that, your plan pays 100% of the cost of your covered medications. This out-of-pocket limit applies whether you have a stand-alone Part D plan or your prescription coverage is included in your Medicare Advantage plan.
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References
Centers for Medicare & Medicaid Services. (2024). Inflation Reduction Act and Medicare.
Centers for Medicare & Medicaid Services. (2024). Medicare prescription payment plan implementation timeline.
Medicare.gov. (n.d.). Before using this payment option.
Medicare.gov. (n.d.). Help with drug costs.
Medicare.gov. (n.d.). What’s the Medicare Prescription Payment Plan?
Medicare.gov. (n.d.). Yearly deductible for drug plans.
Medicare.gov. (2024). Manage your monthly drug costs.
