Key Takeaways

• In 2025, Medicare Part D introduces major reforms, including a $2,000 annual cap on out-of-pocket drug costs, a significant shift that benefits Postal Service Health Benefits (PSHB) enrollees who are Medicare-eligible.

• While the changes offer savings and protections, the details within your PSHB plan’s fine print and Medicare enrollment choices will still influence how much you actually pay.

A New Era for Medicare Part D Starts in 2025

Medicare Part D is undergoing one of its most significant updates since its inception in 2006. For those enrolled in Postal Service Health Benefits (PSHB), especially retirees and family members with Medicare, these changes bring new opportunities for savings. But they also require careful review of plan documents, coverage rules, and Medicare integration. If you are Medicare-eligible or turning 65 soon, this year could be a turning point in how your drug coverage works.

The PSHB Program, newly implemented in 2025, automatically includes Medicare Part D drug coverage through an Employer Group Waiver Plan (EGWP) for eligible retirees. This structure is designed to align with Medicare’s updates while minimizing costs for enrollees. However, the benefits you receive depend not only on what’s offered but also on how you coordinate your Medicare coverage and understand what your specific plan includes.

Understanding the New $2,000 Out-of-Pocket Cap

The centerpiece of the 2025 Part D reform is the $2,000 annual cap on out-of-pocket spending for prescription drugs. Prior to this year, Medicare Part D had no final limit on what you could spend, especially once you reached the catastrophic phase. That has now changed.

With the new structure:

• Your total out-of-pocket costs for covered Part D drugs cannot exceed $2,000 in a calendar year.

• After hitting this threshold, your PSHB plan’s Part D benefit covers 100% of additional covered prescription costs for the rest of the year.

• This cap resets every January 1.

This shift is critical for enrollees with high-cost medications. You may now see substantial savings if you previously paid thousands beyond the former catastrophic threshold.

The New Three-Phase Structure of Part D

Medicare Part D now includes three phases instead of four. This simplification improves transparency and predictability in your drug costs.

1. Deductible Phase:

   • You pay 100% of drug costs until you meet the plan’s deductible (up to $590 in 2025).

   • For those enrolled in PSHB, many plans coordinate this deductible or waive it entirely when paired with Medicare Part B.

2. Initial Coverage Phase:

   • After the deductible, you pay a share of drug costs (copay or coinsurance), and your plan pays the rest.

   • This phase continues until your total out-of-pocket reaches $2,000.

3. Catastrophic Coverage Phase:

   Once you hit the $2,000 limit, you pay nothing for the rest of the year for covered drugs.

Monthly Payment Option for High Drug Costs

Starting in 2025, Medicare introduces the Medicare Prescription Payment Plan, an option that lets you spread out-of-pocket costs over the course of the year. This is especially helpful if you reach the $2,000 limit early in the year and would otherwise have to pay large sums upfront.

Here are the highlights:

• Instead of paying the full amount at the pharmacy, you can opt for monthly installments.

• This applies to out-of-pocket costs for covered Part D drugs.

• You must elect this option and keep payments current to stay enrolled in the program.

As a PSHB enrollee, your plan may offer assistance or reminders about this feature during enrollment season or through communications from OPM.

How PSHB Plans Integrate with Part D in 2025

If you are a Medicare-eligible annuitant or family member enrolled in PSHB, your prescription drug coverage is now handled through a Medicare Part D EGWP.

This EGWP includes:

• Automatic enrollment in Part D if you are enrolled in both PSHB and Medicare Part A and B.

• An expanded pharmacy network.

• Enhanced benefits compared to standard Part D, such as lower copayments or deductibles, especially if you also have Medicare Part B.

You can opt out of the Medicare Part D coverage, but doing so means losing drug coverage under your PSHB plan, with re-enrollment restrictions. So, unless you have other creditable drug coverage, opting out is not advisable.

What Doesn’t Change in 2025

While the updates are extensive, some aspects of Medicare Part D remain consistent:

• You must still be enrolled in Medicare Part A and/or Part B to qualify for Part D.

• The annual Medicare Open Enrollment Period runs from October 15 to December 7, allowing you to make changes for the following year.

• Your plan’s formulary (list of covered drugs) and preferred pharmacy network continue to affect your out-of-pocket costs.

It is essential to review your plan’s Annual Notice of Change (ANOC) to understand how these variables apply to you.

Cost Protections Beyond the Cap

The $2,000 cap is not the only cost-saving change. PSHB plans that work with Medicare may offer additional features:

• Waived deductibles for drug coverage when Medicare is primary.

• Reduced copayments for generics and preferred brand-name medications.

• Coverage of vaccines and insulin at lower, fixed costs.

Although Part D has a federal structure, PSHB plans often negotiate plan-specific arrangements. So, you may experience cost-sharing terms that differ from standard Medicare Part D rules.

Who Is Affected by These Changes

The 2025 Medicare Part D reforms affect you if:

• You are a Postal Service annuitant with Medicare Part A and B and enrolled in PSHB.

• You are a family member of a PSHB annuitant and also Medicare-eligible.

• You have high annual drug expenses, especially for chronic conditions.

• You are considering retirement soon and want to understand how Medicare integrates with PSHB.

If you are not yet eligible for Medicare, these changes may still influence your future planning.

Why Enrollment Timing Still Matters

Medicare Part D changes do not remove the importance of timely enrollment. If you are turning 65 this year, or have recently become eligible for Medicare, you must act during your Initial Enrollment Period (IEP) or risk penalties and gaps in coverage.

The IEP:

• Starts 3 months before your 65th birthday.

• Includes your birthday month.

• Ends 3 months after your birthday month.

Missing this window without other creditable coverage could result in a Part D late enrollment penalty that is added to your premium permanently. Since PSHB integrates with Medicare, enrolling on time ensures you receive the full benefit of the EGWP and enhanced cost protections.

Special Rules for Some PSHB Annuitants

Not everyone is required to enroll in Medicare Part B to maintain PSHB coverage, but if you became a retiree on or before January 1, 2025, you are exempt from the Part B enrollment requirement. However, you can still take advantage of Part D drug benefits through your PSHB plan if you’re otherwise eligible.

Those retiring after January 1, 2025, generally must enroll in both Part A and Part B to maintain full PSHB benefits, including drug coverage. Failing to do so could affect eligibility for the EGWP.

Staying Informed During Open Season

The PSHB Open Season runs annually from November through December. This is your opportunity to:

• Review drug coverage changes, including any updates to the formulary.

• Compare cost-sharing for prescriptions.

• Consider how Medicare enrollment impacts your PSHB plan.

• Evaluate whether you want to use the monthly payment option for drug costs.

You will receive a Plan Comparison Tool and communications from the U.S. Office of Personnel Management (OPM) to help guide your choices.

Pay Close Attention to Plan Materials

With these changes, it is more important than ever to read the plan brochure, drug formulary, and ANOC carefully. Each PSHB plan has:

• Its own network pharmacies and mail-order options.

• Tiered cost-sharing based on drug classification.

• Coordination rules for enrollees with Medicare.

If you are not sure how the new cap or the payment plan applies to your medications, reviewing your materials or speaking with a licensed agent is essential.

What It Means for Your Retirement Budget

The out-of-pocket cap and monthly payment option can help stabilize your health expenses in retirement. Instead of unpredictable, high pharmacy bills, you now have clear limits on what you’ll spend.

This makes it easier to:

• Plan your annual budget.

• Decide how much to keep in your HSA or other savings.

• Avoid delays in filling prescriptions due to cost concerns.

You Have Better Protection—If You Use It Wisely

The Medicare Part D updates in 2025 mark a significant improvement in financial protection for those with high drug costs. But PSHB enrollees must still review their plan details, confirm Medicare enrollment status, and watch for notices during Open Season.

If you’re unsure about your eligibility, cost-sharing, or options, now is the time to get help from a licensed agent listed on this website.