Is it possible that I will spend less than $2,000 out-of-pocket for my Part D formulary drugs and still meet the annual $2,000 prescription drug spending limit?

Yes.  If you are enrolled in a Medicare drug plan (PDP or MAPD) with Enhanced Alternative (EA) drug coverage, you will get credit toward meeting your annual $2,000 maximum out-of-pocket spending limit for the "greater of" either your EA drug plan spending - or the spending you would have if you were enrolled in a 2025 Defined Standard benefit Medicare Part D drug plan (a plan that has a $590 deductible and standard 25% of retail cost-sharing).

As background, starting in 2025, stand-alone Medicare Part D prescription drug plans (PDPs) and Medicare Advantage plans with drug coverage (MAPDs) will no longer have a Coverage Gap (Donut Hole).  After spending $2,000 out-of-pocket for formulary Part D drugs, Medicare drug plan members will move directly from the Initial Coverage phase to the Catastrophic Coverage phase where they will have no cost-sharing ($0) through the end of the year.

Medicare Part D coverage 2025 and beyond


What counts toward the annual $2,000 maximum out-of-pocket spending limit?

• What you actually spend out-of-pocket on Medicare Part D drugs found on your plan’s formulary will count toward the $2,000 maximum prescription drug out-of-pocket spending limit for the entire year (RxMOOP).
  
  
• Plus, what certain third-parties spend for your Part D drugs covered by your plan will also as out-of-pocket spending (TrOOP). As was true in the past, your out-of-pocket spending can also include what other people spend on your behalf for your formulary Part D drugs. For example, your total out-of-pocket spending can include the benefits you receive from a qualified State Pharmacy Assistance Programs (SPAPs).
  
  
• Plus, more importantly, what your Enhanced Alternative Medicare Part D plan pays for your Part D formulary drugs may also count toward TrOOP.
  
  A word about different Medicare drug plan benefits:  There can be different types of Medicare drug plan coverage based on the Defined Standard (DS) Medicare Part D plan released each year by Medicare.  In 2025, the annual Medicare Defined Standard drug benefit has a $590 deductible and 25% cost-sharing for all formulary tiers (you pay 25% of the retail drug cost). 
  
  When creating the 2025 Part D drug plans, Medicare plan providers can then either adopt the 2025 DS plan coverage - or the insurance companies can offer three different variations in coverage that are either the same as, or even better than, the Defined Standard benefit.  These Part D plan benefit variations are: Basic Alternative (BA), Actuarial Equivalent (AE), and Enhanced Alternative (EA) Medicare Part D plans.
  
  Most people (75% to 90%) who are not eligible for the Medicare Part D Low-Income Subsidy (LIS) program are already enrolled in a Medicare Part D drug plan (PDP or MAPD ) that has an Enhanced Alternative benefit.
  
  Why an EA Part D plan in 2025?  If you enroll in a 2025 "Enhanced Alternative" (EA) Medicare Part D plan (or MAPD with EA drug coverage) – your EA plan drug coverage will exceed the Defined Standard (DS) benefit with your EA drug plan having lower (or $0) drug deductible and lower copays – and you will get credit for what you spend on Part D formulary drugs plus what your EA Medicare plan spends toward your Part D drugs – up to the amount you would have spent if you were covered by a Defined Standard Part D plan.
  
  Bottom Line:  A Medicare Part D beneficiary enrolled in a stand-alone Medicare PDP or MAPD with Enhanced Alternative (EA) drug benefits will get credit toward out-of-pocket spending (TrOOP) for the “greater of” either - what the person actually spends through their Enhanced Alternative plan's cost-sharing - or the cost-sharing for the same drug purchase as if they were enrolled in a Defined Standard (DS) drug plan with standard 25% cost-sharing.
  
  Here are a few short examples:  Assume you are in an Enhanced Alternative (EA) Part D drug plan - and you are in the Initial Coverage phase - and your total drug spending exceeds $590 (including what others have spent on your behalf).
  
  Simple example 1: You purchase a Tier 2 drug with a $100 retail cost and your EA plan has a $10 copay.
  
  Your effective cost-sharing for the EA plan is 10% ($10/$100) and since 10% is < the 25% standard cost-sharing of a Defined Standard plan – you get TrOOP credit of the DS plan (because the DS plan cost-sharing of $25 is greater than the EA cost-sharing of $10).
  Result: You spend $10 and get TrOOP credit for $25.
  (There is an additional $15 counted toward your total out-of-pocket spending.)
  
  Simple example 2: You purchase a drug with a $100 retail cost and your EA plan has a $30 copay.
  
  Your effective cost-sharing for the EA plan is 30% ($30/$100) and since 30% is > the 25% cost-sharing of a DS plan – you get TrOOP credit of the EA plan (because the $30 EA copay is greater than the DS cost-sharing of $25).
  Result: You spend $30 and get credit for $30.
  (There is no additional amount counted toward your total out-of-pocket spending.)

Sources include:

CMS Fact Sheet: "CMS Releases 2025 Medicare Part D Bid Information and Announces Premium Stabilization Demonstration"
https://www.cms.gov/newsroom/fact-sheets/cms-releases-2025-medicare-part-d-bid-information-and-  announces-premium-stabilization-demonstration

CMS Press Release, "Medicare Advantage and Medicare Prescription Drug Programs to Remain Stable as CMS Implements Improvements to the Programs in 2025"  https://www.cms.gov/newsroom/press-releases/medicare-advantage-and-medicare-prescription-  drug-programs-remain-stable-cms-implements-improvements

CMS Fact Sheet, "Medicare Advantage and Medicare Prescription Drug Programs to Remain Stable as CMS Implements Improvements to the Programs in 2025"  https://www.cms.gov/newsroom/fact-sheets/medicare-advantage-and-medicare-prescription-drug-  programs-remain-stable-cms-implements-improvements

"Final CY 2025 Part D Redesign Program Instructions Fact Sheet "
https://www.cms.gov/newsroom/fact-sheets/final-cy-2025-part-d-redesign-program-instructions-fact-sheet

"Final CY 2025 Part D Redesign Program Instructions"
https://www.cms.gov/files/document/final-cy-2025-part-d-redesign-program-instructions.pdf

"Prescription Drug Event Record Reporting Instructions for the Implementation of the Inflation Reduction Act for Contract Year 2025"
https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/PDE_Record_Reporting_  Instructions_for_the_Implementation_of_the_IRA_for_Contract_Year_2025_508_G.pdf

** Special thanks to the amazing Milliman article:
Karcher, J., Magnusson, J. S., & Robb (Klein), M. (August 27, 2024). "Out of whose pocket? Many beneficiaries will spend less than expected to reach the IRA’s new $2,000 out-of-pocket spending limit"
https://www.milliman.com/en/insight/out-of-whose-pocket-inflation-reduction-act