Avoiding Common Traps in Prescription Drug Insurance Plans

Prescription drug insurance can save you money, but hidden traps and rising costs could derail your savings—here’s how to stay ahead. 

When someone is trying hard to get you to focus on their right hand, keep an eye on their left. This is true with con-men and three-card monte dealers. And it’s certainly true with prescription drug insurance.

This is excellent advice for Medicare beneficiaries as well. Because Medicare officials and drug insurance are trying to pull a trick: They’re promising to lower drug costs for many beneficiaries. But they’re also hiding some important changes in the fine print.

Understanding how they do this can help you pick the plan that works best for you, not them.

In this blog post, we’ll show you how it works. 

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Prescription Drug Insurance Changes for 2025: Key Benefits and Hidden Costs

First, the good news.

The Medicare Part D coverage gap, also known as the “donut hole,” has gone away in 2025.

Second, starting in 2025, Medicare Part D limits your out-of-pocket costs for drugs to $2,000 per year. That’s a big plus compared to the previous catastrophic phase. Previously, people who needed a lot of expensive drugs had to pay 5% of drug costs for the remainder of the plan year.

Until 2024, if needed a drug that cost $20,000 per month – as some modern cancer-fighting drugs do – you would face out-of-pocket costs of up to $1,000 per month.

That’s on top of everything else you paid under the donut hole, plus deductibles and copays.

Your theoretical cost exposure under the old system was infinite.

For 2024, they capped your out-of-pocket exposure at $8,000 for the year. A big improvement over the previous pricing structure, but certainly much more onerous for beneficiaries compared to 2025’s $2,000 cap.

Both the out-of-pocket cap and the elimination of the donut hole are positive, pro-consumer changes that will have immense value for people who need a lot of expensive drugs.

But as with all things, there are tradeoffs. The insurance and pharmaceutical industries have to offset the cost of these improved catastrophic benefits somehow.

And they are. Here’s how.

Watch the Fine Print on Prescription Drug Insurance

As insurers adjust to the new coinsurance and copay scheme for 2025, they are compensating in several different ways.

First, premiums are increasing. The 2025 Part D base beneficiary premium is $36.78, a 6% increase from 2024. That’s the maximum increase allowed by the Inflation Reduction Act.

Second deductibles have also gone up. For 2025, they increased by $45, from $545 to $590. That’s an increase of nearly 10% year over year.

These measures don’t just impact people with very high drug costs. Higher premiums affect everyone who buys a Part D plan. Furthermore, the higher deductibles affect millions of people who have even moderate prescription drug needs.

You can also expect other indirect effective price increases. These aren’t easy to spot at first glance. To understand them, you need to delve into each plan’s fine print. Specifically, the plan tiers and drug formularies for each plan.

Learn More: All About Medicare Part D Prescription Drug Plans

Hidden Changes: Formularies and Drug Tiers

Medicare Part D companies are making subtle changes to their formularies (the list of drugs they cover), and their drug pricing tiers.

They do this to make up for lost revenue because of the lower out-of-pocket caps.

You won’t see these reflected in the “sticker price” that Part D companies show in their marketing and basic online summaries. To catch these price increases, you’ll need to dig into each plan’s fine print, and look at the formulary and tier pricing details.

Here’s what you need to know about both of these mechanisms.

Understanding The Formulary

Insurance companies must cover certain types of drugs, but not every plan covers the same drugs.

Plan formularies must include drug classes covering all disease states, and at least two chemically distinct drugs in each of these six drug classes:

But that doesn’t mean they have to cover your preferred drugs, or the drugs your doctor recommends. Part D plans don’t have to cover the most effective drugs. They just need to include two distinct drugs in their formularies for each of these categories.

Even if your plan covers your medications this year, that could change next year, as Medicare Part D companies adjust to demand patterns.

To make up for lost revenues, your Part D plan could roll back the availability of more recently developed and more advanced drugs –– essentially reducing benefits.

Understanding Drug Price Tiers

Plans place drugs into tiers, and each tier costs you more as you go up:

Tier 1: Preferred generics – The lowest-cost tier. Often covered 100%. Deductible sometimes disregarded.

Tier 2:  Regular generics – Very low cost, but with a copay. Deductible sometimes disregarded.

Tier 3: Preferred brand-name drugs – moderate cost. Drugs may still be under patent. Deductible always applies.

Tier 4:  Non-preferred brands – higher cost, requiring significant copays. Deductible always applies.

Tier 5:  Specialty drugs – most expensive, with highest copays of any covered drugs. Deductible always applies.

Note that some plans cover Tier 1 and Tier 2 drugs before the deductible. That is, if you haven’t met your deductible, the drugs are still covered, with little or no out-of-pocket costs from you.

Watch for Price Tier Changes

Your Part D company may also increase out-of-pocket costs by adjusting price tiers.

For example, a Tier 3 drug may be shifted to the Tier 4 category.

Or the copays for each tier could increase.

Or the plan could start requiring you to meet a deductible even for certain Tier 1 and Tier 2 drugs where they didn’t before.

In each case, this would result in you paying more out of pocket for your prescription drugs.

Learn More: Prescription Drug Costs Have Gotten Insane – Here’s How To Protect Yourself

Beware The “Low-Premium” Trick

Some Medicare Part D plans have premiums as low as $10 per month.

Unless you’re in excellent health (and willing to bet things will stay that way!) the monthly premium savings might not be worth it.

Here’s why: In insurance, there is no such thing as a “free lunch.” If the premium or deductible drops, there’s always a trade-off somewhere else, like in drug tiers or coverage rules.

Marketing Rules and Missed Changes

Medicare agents have strict marketing rules, but Part D plans don’t face the same limits.

This means you’ll get letters or emails from your plan or other companies about changes. If you don’t read them closely, you could miss important details about rising costs or drug tier changes.

They may even mislead you stating you can get better savings with another plan, like an Advantage plan. However it is misdirecting and misleading because they don’t reveal the disadvantages of switching to a Medicare Advantage plan. For example, while Medicare Advantage plans have very low premiums, they also have much higher out-of-pocket maximums for people who need care.

Medicare Advantage Plans

Medicare Advantage plans can sound appealing with lower premiums.

And they are a great solution if you’re in generally good health and you want to keep their monthly costs as low as possible.

But low-cost Medicare Advantage plans may limit your drug options compared to stand-alone Part D plans.

So always check the Medicare Advantage plan’s formulary before switching.

How To Use Your Insurance Agent

Remember, it’s not your Medicare agent or broker who’s making these changes.

They’re just the messenger. And they’re required by law to offer you the same pricing every other agent or broker does.

It’s the insurance companies that set the rates. They adjust formulas, premiums, and deductibles to make more money. But they’re constrained by the very real increases in drug prices, and the pressure to include more and more advanced and expensive drugs. And, of course, they face the same inflationary pressures everyone else does.

Your agent can help you stay informed. For example, your MediGap Personal Benefits Manager can help you quickly pull up your plan’s formulary and help you analyze their coverage and pricing.

If your current plan’s coverage isn’t what you need, your PBM can help you explore alternative plans available in your area that may be more suitable for you.

It’s a good idea to check with your agent every year or two to make sure you’re still in the best possible plan for your situation.

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Medicare Open Enrollment: Update Your Prescription Drug Insurance Plan

The Medicare Open Enrollment Period runs every year from October 15th through December 7th.

That’s the time to make changes to your Medicare Part D and Medicare Advantage coverage. To schedule a no-cost personal consultation and recommendation, make an appointment with a Personal Benefits Manager.

Stay Alert: Protect Yourself from Prescription Drug Insurance Traps

Insurance companies are counting on you not paying attention.

Before signing up for a plan, review it closely. Look at how it covers your specific medications. If a plan looks too cheap, there’s probably a catch. Don’t fall for marketing tricks that end up costing you more in the long run.

For a free consultation and quote, contact one of our Personal Benefits Managers today.

For Further Reading

• Transitioning to Medicare: Can You Keep Health Sharing with Medi-Share 65+?
• Medicare Basics: 5 Things You Need to Know About Medicare Parts A and B
• How to Pass Medigap Underwriting