For years, Medicare recipients with high prescription drug costs have dreaded the Stage 3 Coverage Gap—better known as ‘The Donut Hole.’ Now that it’s gone, many expected relief. But the reality is more complex—costs aren’t disappearing, they’re just shifting.
As the 2025 Annual Enrollment Period (AEP) approached, insurance carriers, Field Marketing Organizations (FMOs), and brokers braced for major benefit cuts and cost increases. We awaited major benefit cuts and cost increases across all Medicare programs for 2025. I am happy to report this upheaval did not happen. Yes, a few benefits decreased, and yes, we saw premium increases in some sectors. However, Medicare remains intact, and the projected disaster passed by with only a slight fizzle.
The Part B premium increased from $174.70 to $185.00, and the yearly Part B deductible moved up from $240 to $257. Supplement Plans saw moderate increases in premiums, Advantage Plans had movement throughout their coverage options, and Drug Plans changed significantly through restructuring.
Here's what you need to know...
Changes to Medicare Drug Plans in 2025
It is important to address the changes to Medicare Prescription Drug Plans (PDPs), which fall under Part D of Medicare. Prescription Drug Plans (PDPs) can be purchased as a stand-alone product to accompany Original Medicare (Parts A and B) or with a Supplement policy. They are also an integral part of many Medicare Advantage plans.
Whether you have a stand-alone PDP or your drug coverage is included in an Advantage plan, PDPs have undergone major restructuring for 2025.
A vital part of all PDP plans is the TrOOP (True Out-of-Pocket Cost). This limits the total amount a Medicare Part D beneficiary spends on covered prescription drugs—including their copays, coinsurance, and deductible—as well as certain payments made on their behalf by third parties.
Once your costs exceed the TrOOP threshold, you move into catastrophic coverage, where you pay nothing for covered drugs for the remainder of the year.
For the first time in years, the TrOOP limit has been recalculated, and the dreaded Donut Hole—also known as the Stage 3 Coverage Gap—has been eliminated for 2025.
Coverage Gap Eliminated—What That Means for You
Prior to 2025, when the cost of an individual’s covered drugs reached $5,030, they moved from Stage 2 Initial Coverage (copayments) to Stage 3 Coverage Gap (Donut Hole), where they paid 25% of all drug costs until reaching $8,000 out of pocket.
However, in 2025, the Coverage Gap has been eliminated. Now, once a person reaches $2,000 in covered drug costs, they move directly to Catastrophic Coverage and pay nothing for their prescriptions for the remainder of the year.
While this restructuring helps those with high drug costs, it shifts the financial burden to insurance carriers—likely leading to higher premiums for consumers. In other words, the costs trickle down.
Who Pays for Medicare’s Catastrophic Drug Coverage?
Once an individual reaches $2,000 in drug costs, they bypass the coverage gap and proceed directly to catastrophic coverage. Once in catastrophic coverage, the beneficiary pays nothing more for their Medicare-covered prescriptions for the rest of the year.
However, this extends the period in which more prescription drugs are covered at no cost to the consumer. Who pays the costs?
In 2024, when catastrophic coverage was used far less frequently, Medicare covered 80% of the cost. In 2025, with the significant increase in catastrophic coverage usage, Medicare’s contribution will drop from 80% to 20% for brand-name drugs and from 80% to 40% for generic drugs.
The remaining costs will shift to insurance carriers, whose share will increase from 15% in 2024 to 60% in 2025 for both brand-name and generic drugs. Drug manufacturers will now be required to contribute up to a 20% price discount.
How This Will Affect Your Medicare Plan
The impact of these changes is far-reaching. Many insurance carriers have reduced their plan offerings in unprofitable areas, and some are withdrawing entirely from certain states in 2025.
Advantage plans, which include drug coverage, have had to adjust benefits to absorb these cost increases. As a result, beneficiaries are left asking where their over-the-counter (OTC) benefits went, why their dental allowance decreased, or why their hospital copayment increased. The answer? Restructuring.
Stand-alone drug plans have had fewer options to distribute costs. If not positioned for this increase, some plans disappeared altogether, while many increased costs. Certain drugs moved up to higher tiers, raising copayments, and some medications were removed from formularies.
I have consistently advised clients to review their Annual Notification of Change (ANOC) letters, which outline plan changes for the coming year. These letters, issued in September or October, provide critical updates on coverage adjustments. However, in my experience, most recipients simply discard them—only to be surprised by unexpected changes in January 2025.
Act Now: Limited Time to Adjust Your Medicare Plan
If you were caught off guard by changes to your 2025 Medicare plan, there is still a short window of opportunity to adjust your coverage and salvage the rest of the year.
The Medicare Advantage Open Enrollment Period (MA-OEP) runs until March 31. During this time, you can still change existing Medicare Advantage Plans if your current coverage no longer meets your needs.
Expats and Frequent Travelers
This is especially important for expats and frequent travelers, as Medicare Advantage plans offer the best overseas coverage, including:
Emergency care, urgent care, and ambulance services for up to six months per trip outside the U.S.
A small copayment per use, which varies by carrier.
No additional coinsurance.
Many plans provide unlimited coverage.
Before traveling or relocating overseas, it’s crucial to understand how your Medicare plan covers you abroad.
Editor's Note: For a comprehensive breakdown of Medicare options for expats and frequent travelers, refer to the 2025 updated edition of my book: Medicare Made Easy: What Expats, Frequent Travelers, and You Need to Know. You can also contact me directly at ron@ronelledge.com with any questions.
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