Medicare’s Prescription Out of Pocket Limit is $2,000, but many plans reach the cap with paying much less!

Starting this year, all Medicare prescription drug plans, whether they are included in a Medicare Advantage plan or a stand alone (Part D) policy have a maximum out of pocket cap of $2,000.  Medicare’s prescription drug coverage changed drastically from 2024 to 2025, and one of the biggest shifts was whose money is going towards the $2,000 cap.  Prescription plans are either considered Enhanced or Standard and in New Jersey there are 14 prescription drug plans available and Medicare Advantage options vary by the county.

This year, there are 3 phases of prescription coverage.

Deductible Phase – Plans can have as high as a $590 deductible on medications but some plans decide to pay the deductible for the beneficiary and are $0 deductible.

In New Jersey 2 Medicare prescription plans have no deductible and some Medicare Advantage plans are avaialble with no deductible.

Initial Coverage Phase-  Prescription Drug Plans have either a copayment or coinsurance for each Tier of prescription.   A copayment is a straight dollar amount for a prescription, whereas a coinsurance is a percentage of the prescription’s cost.   Medications are categorized into tiers, with most generic prescriptions falling in Tiers 1 or 2 and brand-name prescriptions being Tiers 3-5.  Many plans have Tier 1 and Tier 2 prescriptions with a low copayment. 

Tier 3 prescriptions are either a coinsurance of up to 25% or a copayment in the range of $50.

Catastrophic Phase- You pay no charge for prescriptions once this phase is hit for the remainder of the year. The threshold for reaching this phase is $2,000.  First, the deductible phase of $590 goes toward the $2,000 amount, and after that 25% of the cost on medications.

For Enhanced Drug plans the amount is both what you pay out of pocket at the pharmacy and part of what the drug plan is paying towards the medication.  Plans premiums do not go towards the $2,000 maximum out of pocket.  You can see all the Medicare plans available in New Jersey and whether their drug benefit category is Basic or Enhanced with this website.

Anyone on assistance with prescriptions through either NJ PAAD or Federal Extra Help are already paying a low cost for covered medications and this cap doesn’t benefit them more.

 

Example of how out of pocket costs work

Michael has 1 medication, a brand name tier 3 prescription.

He enrolls in an enhanced prescription plan for $100 per month.

Deductible is $0

With this plan Tier 3 medication are $50 copayment for one month supply.

The full cost of his one medication is $1,000 per month.

He doesn’t pay the plans deductible but $590 goes towards the maximum out of pocket amount.

25% of the cost of the medication also goes towards the $2,000 cap.  So each month $250 goes towards the maximum out of pocket but he is only paying $50 per month.

 

He hits the catastrophic level by month 7 and then he owes no additional cost at the pharmacy for the remainder of the year.

	January	February	March	April	May	June	July	Aug-Dec
Michael's Cost	$50	$50	$50	$50	$50	$50	$15	$0
Amount towards $2,000 cap	$692	$250	$250	$250	$250	$250	$58	-
True Out of Pocket Cost (TROOP)	$692	$942	$1,192	$1,442	$1,692	$1,942	$2,000	$2,000
Michael's Total	$315

 

His plan’s premium is $100 per month so $1,200 per year plus $315 for his prescription.  His total annual amount on prescriptions is $1,515

Many people and even the company customer service representatives do not understand how this calculation works.  Medicare beneficiaries who are prescribed brand name drugs and are on the right prescription coverage can pay much less than $2,000 on prescriptions in 2025. 

For any additional questions please reach out to us at New Jersey Medicare Brokers