Medicare Part D Isn’t a Safety Net Unless You Understand How Coverage Phases Work

Key Takeaways

• Medicare Part D coverage in 2025 includes a $2,000 annual cap on out-of-pocket drug costs, but the financial protection only activates after you’ve moved through all phases of the benefit.

• As a PSHB enrollee, failing to understand the structure of the deductible, initial, and catastrophic phases can leave you unprepared for cost spikes during the year.

Understanding Part D Inside the PSHB Framework

Postal Service Health Benefits (PSHB) now fully integrates Medicare Part D drug coverage for eligible annuitants and their Medicare-enrolled dependents through an Employer Group Waiver Plan (EGWP). While this sounds like full protection from high prescription costs, there’s a critical catch: Part D operates in phases. And each phase dictates how much you must pay before reaching meaningful coverage.

Understanding the four phases of Part D isn’t just useful—it’s necessary to avoid unexpected bills. Here’s how it works in 2025.

The Deductible Phase (First Dollars Come Out of Your Pocket)

In 2025, Medicare Part D plans can charge up to $590 as a deductible. This phase starts every January 1 and runs until you’ve paid the full deductible amount out of pocket.

• What you pay: You’re responsible for 100% of your covered drug costs until you meet the deductible.

• Important note for PSHB plans: Some plans may waive this deductible, especially if you’re also enrolled in Medicare Part B. But this isn’t guaranteed—check your PSHB plan brochure for details.

Many annuitants overlook this first hurdle, mistakenly believing their coverage begins on day one. The deductible phase resets every year, and failure to plan for it can create a budget shock at the pharmacy counter in January.

The Initial Coverage Phase (Shared Costs Kick In)

Once you meet the deductible, you enter the initial coverage phase. In this phase, Medicare and your plan pay a portion of your drug costs, and you cover the rest through copayments or coinsurance.

• Ends when: Your total drug costs—including what you and your plan pay—reach $5,030 in 2025.

• Cost-sharing: Typically involves fixed copays or a percentage of the medication cost. These vary based on the drug’s tier.

PSHB plans tied to Medicare EGWP often negotiate lower copays in this phase. However, those copays still count toward the $5,030 threshold, and once you hit it, you move into a stage that can be very confusing.

The Coverage Gap Is Gone—But the Spending Phase Isn’t

Prior to 2025, Medicare Part D included a coverage gap, often called the “donut hole.” In 2025, this phase has been officially eliminated. However, the cost implications of this transition can still affect you.

Now, once your total drug spending exceeds $5,030, you move straight into the catastrophic coverage phase. This change simplifies the system on paper but doesn’t erase your financial responsibility.

• Key misunderstanding: Many believe the $2,000 cap takes effect once this phase begins. In reality, it only applies once your out-of-pocket spending hits that amount, not your total drug cost.

The Catastrophic Phase Begins—but Doesn’t Always Mean Zero Costs

When your out-of-pocket costs reach $2,000, the catastrophic phase starts. From that point on, you won’t pay anything more for covered medications in 2025. This phase offers true financial relief—but getting to it may take longer than you expect.

• Out-of-pocket means: Deductible + copays/coinsurance + any amount you’ve paid that the plan didn’t cover.

• Does not include: Amounts your plan paid, or what manufacturer discounts contributed.

PSHB annuitants who take expensive medications may hit this cap early in the year. But those on lower-tier generics or only occasional prescriptions may never reach it.

Why PSHB Enrollees Need to Pay Close Attention

The structure of the PSHB program in 2025 relies on you being enrolled in both Part B and Part D to get the most from your coverage. If you’re not enrolled in Part B, your drug plan may not cover as generously. If you opt out of Medicare Part D, you’ll forfeit the integrated prescription benefits offered through PSHB.

• Mandatory enrollment: For some annuitants, enrollment in Part B (and by extension Part D through EGWP) is required to keep full PSHB drug coverage.

• No standalone PSHB drug option: If you opt out of Part D, you can’t get another form of drug coverage through PSHB. That decision could leave you vulnerable.

What the $2,000 Cap Does—and Doesn’t—Cover

The newly introduced $2,000 annual out-of-pocket cap in 2025 is the most talked-about change in Medicare Part D, but it’s also one of the most misunderstood.

It covers:

• Prescription drugs covered by your Medicare Part D EGWP plan

• Out-of-pocket costs including deductible, copayments, and coinsurance

It does not cover:

• Drugs not on your plan’s formulary

• Out-of-network pharmacies (unless approved)

• Over-the-counter medications

• Non-covered services like vitamins or supplements

If you use a non-formulary drug or don’t follow your plan’s rules (such as step therapy or prior authorization), the spending may not count toward your $2,000 limit.

When You’ll Likely Reach Each Phase

Here’s a rough idea of when you might move through the phases based on your medication usage:

• Low-cost drug users: You might stay in the initial coverage phase all year and never hit the $2,000 cap.

• Moderate-cost drug users: You could reach the $2,000 cap near mid-year.

• High-cost drug users: You may hit the cap in the first quarter, depending on your medication regimen.

It’s important to anticipate these changes as early as possible and factor them into your annual budget planning.

Tools Available to PSHB Members

To help you track your drug spending:

• PSHB plan dashboards: Many EGWP-integrated plans provide online portals to track your deductible and total out-of-pocket expenses.

• Monthly statements: These explain your current phase, remaining amount to reach the $2,000 cap, and breakdown of costs.

• Customer service lines: You can always reach out to your PSHB plan directly with questions.

Don’t assume that the plan will automatically alert you when you transition phases. It’s your responsibility to monitor this activity, especially early in the year.

Avoiding Common Pitfalls in Part D Coverage

There are several missteps you can avoid to ensure you get the most out of your Part D drug benefits through PSHB.

• Not reviewing the formulary: Each year, your plan’s list of covered drugs can change. If your medication is dropped, the costs may not count toward your cap.

• Using out-of-network pharmacies: Only approved pharmacies contribute toward the $2,000 cap.

• Ignoring plan mailings: Updates to pricing tiers, coverage rules, or utilization restrictions often come in the form of ANOC (Annual Notice of Change) documents. Missing these details could lead to higher costs.

Timing Matters: Watch for Annual Deadlines

The PSHB and Medicare timelines both affect your drug coverage:

• Open Season (November to December): This is your annual opportunity to change your PSHB plan or enroll in Medicare if newly eligible.

• Medicare Enrollment Periods: If you miss your Initial Enrollment Period or Special Enrollment Period, you may have to wait until the General Enrollment Period—and risk a late penalty.

Missing deadlines can have lasting effects. For instance, failure to enroll in Part B when required can disqualify you from PSHB drug coverage entirely.

Make the Most of What You Have

Your PSHB plan with integrated Part D coverage through EGWP offers powerful protection—but only if you understand how the moving parts work. From the deductible to the $2,000 out-of-pocket cap, each phase of Part D has implications for your wallet and your health.

If you’re uncertain about how these phases apply to your situation, you don’t have to figure it out alone. Reach out to a licensed agent listed on this website for personalized support.