Good news and bad news for those whose Part D drug costs have recently skyrocketed

It's that time of year when many who have Part D drug coverage experience price shock. Here's an example of what's happening with my clients.

• Can this be right? The $141 deductible for my expensive eye drops just went up to $520 and the cost of my other medications went down to $0.75 to $4.
• Did I choose the wrong plan? After I met the plan's deductible, I paid $11 for a drug. This month I received a bill for $201.

Yes, unfortunately these costs are probably correct and no, you probably haven't chosen the wrong plan.

The simple explanation is that both customers fell into the coverage gap.

Refresher on the phases of drug payment

In 2006, when Part D began covering prescription drugs, there were four payment tiers with different costs.

Excess: The standard deductible started at $250, was $535 this year, and will be $590 in 2025. This is the amount you pay out of pocket before the plan starts paying. A plan can choose to charge no deductible or any amount up to the set amount. Generally, only Tier 1 and Tier 2 drugs are subject to this deductible, but each plan sets it.

Initial coverage: In this phase, the beneficiary pays 25% of the drug cost. Most plans require a copayment (a set amount, such as $3 or $10). Once the amount spent by the person and the plan reaches a set threshold, which is $5,300 in 2024 (about $1,300 out of pocket), the next phase begins.

The coverage gap: This is commonly referred to as the donut hole. By design, this is the stage where the drug plan member is responsible for most or all of the costs. In the early days of Medicare drug plans, those who landed here had to pay 100% of the cost of each drug. Then the Affordable Care Act offered rebates, starting at 50%. Since then, rebates have been gradually increased each year until the donut hole closed completely in 2020. Contrary to popular belief, this does not make the drugs free; it simply means that everyone pays 25% of the drug cost directly, likely raising cost-sharing for expensive drugs and lowering it for cheaper drugs.

Once the total of the individual's own costs and brand discounts reach $8,000, the final payment phase begins.

Disaster management: Until 2023, drug plan members who reached this level paid 5% of the drug cost. However, the Inflation Mitigation Act eliminated the copayment, so anyone who exceeds this threshold won't pay a penny more for the rest of the year, saving about $3,100 in out-of-pocket costs.

Good and bad news

Anyone experiencing this price shock should remember these points.

First the bad news: Anyone in shock will be left with higher drug costs, whether they have a stand-alone Part D drug plan or a Medicare Advantage plan with drug coverage.

With good news for some: If drug costs reach the catastrophic coverage threshold, you will not pay any additional costs for your medications.

More good news in 2025 for some: After 18 years of what were, for many, quite costly years, this is the last hurrah for the doughnut gap. The IRA has eliminated it and instead implemented a $2,000 cap on Part D drug costs. Once the copayment reaches $2,000, there are no additional drug costs.

And bad news for virtually everyone with Part D insurance: The good news sounds really good for those who are suffering from the price increases now but aren't starting to celebrate yet. The $2,000 cap will have consequences because of the impact on Part D drug plans.

Once the cap is reached, drugs won't miraculously become free; rather, the party responsible for paying will change; the share that drug plans will have to pay will increase dramatically. That likely means there will be some changes to help those plans absorb those costs. Many experts predict higher plan premiums, higher cost-sharing (copayments and deductibles), more restrictions (prior authorization and step therapy) on expensive drugs, and even removal of drugs from the plan's drug schedule or covered drug list.

Medicare open enrollment begins next month, on October 15. Remember to open your annual notice of change, keep track of what's happening with your drug plan, and review your options. Otherwise, you'll likely receive more bad news in 2025.