Key Takeaways

• The new $2,000 out-of-pocket cap under Medicare Part D in 2025 offers real financial relief, but it doesn’t eliminate surprise drug costs if you fall into a non-preferred tier.

• PSHB enrollees with Medicare must understand how tier placement, formulary design, and cost-sharing rules still affect what they pay out-of-pocket.

What the 2025 Drug Cost Cap Really Promises

For 2025, Medicare has introduced a $2,000 annual cap on out-of-pocket costs for prescription drugs under Part D. This marks a major shift from the old system that included the coverage gap or “donut hole,” which caused sudden cost increases midyear. Now, after you’ve spent $2,000 out-of-pocket on covered drugs, your plan pays 100% of your medication costs for the rest of the year.

At first glance, this change seems like a win across the board. But when you’re enrolled in a Postal Service Health Benefits (PSHB) plan that integrates with Medicare, the reality is more nuanced. Especially when you’re prescribed a medication that sits in a higher or non-preferred tier on your plan’s drug list.

Understanding Tiered Formularies in PSHB Plans

Most PSHB plans use tiered formularies to classify drugs. Each tier represents a different level of cost-sharing. Here’s a basic overview:

• Tier 1: Preferred generics, lowest copay.

• Tier 2: Non-preferred generics or preferred brand-name drugs.

• Tier 3: Non-preferred brand-name drugs, higher cost.

• Tier 4 and above: Specialty or high-cost drugs, often with coinsurance instead of a fixed copay.

If you need a drug listed in Tier 3 or higher, your out-of-pocket cost could be significantly higher per fill—sometimes requiring coinsurance up to 33% until you hit that $2,000 cap. And reaching that cap isn’t always as fast or easy as it sounds.

The Problem With Non-Preferred Tiers

While the $2,000 ceiling on prescription drug spending is fixed for 2025, your exposure before you reach that cap varies drastically based on the tier of your medications. For example:

• A Tier 1 drug might cost you $5-$10 per month.

• A Tier 4 drug could cost hundreds per fill until the cap is reached.

Plans aren’t required to place every medication on a preferred tier. In fact, drugs used to treat complex or less common conditions are more likely to fall into non-preferred or specialty tiers.

That’s where many PSHB enrollees get caught off guard. You may assume the cap protects you, but if you fill just one expensive drug monthly, you could pay hundreds for several months before you hit that $2,000 threshold.

What Counts Toward the $2,000 Cap

The $2,000 cap in 2025 only includes your out-of-pocket costs:

• Deductibles (if any)

• Copayments and coinsurance

• Costs paid in the initial coverage phase

• Costs paid in the catastrophic phase (if reached before hitting the cap)

It does not include what your plan pays or what manufacturer discounts cover. Only your personal spending on covered drugs adds up toward the cap.

This means that even if your plan or the drug manufacturer covers a large portion of your medication’s price, you still have to reach $2,000 of your own spending before cost-sharing disappears.

Coordination Between PSHB and Medicare Part D

If you are a Medicare-eligible Postal retiree enrolled in a PSHB plan, your drug coverage is automatically integrated with a Medicare Part D Employer Group Waiver Plan (EGWP). This provides:

• Access to Medicare’s $2,000 cap

• Broader pharmacy networks

• Potential cost savings through formulary management

However, this integration doesn’t eliminate tiered pricing or the plan’s ability to place drugs in non-preferred categories.

You may still face high costs for:

• Non-formulary drugs

• Tier 4 and 5 specialty medications

• Brand-name drugs when generics are available

Even though the PSHB drug coverage aligns with Medicare Part D, the burden of high-tier pricing remains your responsibility until you hit the spending cap.

Prior Authorizations and Step Therapy Can Delay Access

Another layer to this issue is the utilization management tools plans use:

• Prior authorization may be required before certain drugs are covered.

• Step therapy may require trying a cheaper drug first.

These protocols often apply more aggressively to higher-tier medications. So, even if you’re willing to pay the cost, you may be denied coverage until you go through extra administrative steps.

This can delay treatment, increase your short-term costs, or push you to switch medications—all while the $2,000 out-of-pocket clock continues ticking.

Generic vs Brand: Why It Matters More Than Ever in 2025

As more plans try to steer enrollees toward lower-cost options, generic medications are strongly incentivized.

• Generics are almost always Tier 1 or 2.

• Brands typically land in Tier 3 or higher.

• Specialty drugs may bypass lower tiers entirely.

If your provider prescribes a brand-name drug when a generic is available, your plan may not cover the brand at all or may impose steep coinsurance.

In 2025, switching to a generic when available could be one of the most powerful ways to avoid blowing through your $2,000 cap early in the year. That said, not every drug has a generic equivalent—and for those who depend on specific branded or specialty medications, the financial burden is still real.

Pharmacy Networks Can Influence Your Costs

Even under the integrated Medicare Part D model, your PSHB plan will likely have a preferred pharmacy network. Using out-of-network pharmacies or non-preferred locations can result in higher costs and may not count fully toward the $2,000 cap.

Make sure you:

• Use in-network or preferred pharmacies whenever possible.

• Confirm that the pharmacy reports claims to your plan.

• Track your out-of-pocket totals regularly.

Failing to use a preferred pharmacy may mean you pay more and take longer to reach the cap.

Mid-Year Price Changes and Formulary Updates

Plans can and do update their formularies during the year, which may include:

• Moving drugs to different tiers

• Changing prior authorization requirements

• Removing drugs from coverage

You should receive a notice if your drug is affected, but it may arrive just weeks before the change takes effect. If a drug you rely on is suddenly bumped to a higher tier, your monthly cost could spike even if you were budgeting based on the old rate.

In a year like 2025—with big structural changes and growing attention on cost containment—these mid-year changes could catch many retirees by surprise.

You May Not Reach the Cap Every Year

While the $2,000 cap is a firm limit on how much you can pay, it doesn’t mean you will reach it. If your prescriptions are mostly generics or limited in number, you may only spend a few hundred dollars a year.

That’s a good thing, but it also means you might:

• Never benefit from the 100% cost coverage

• Still face administrative issues with prior authorizations or denied claims

• Be vulnerable to plan changes that raise costs without hitting the cap

So while the cap is a safety net, it’s not a guarantee of affordability for everyone.

Strategies to Avoid Surprises in 2025

To protect yourself, especially under PSHB with Medicare, take these steps:

• Review the plan’s drug formulary every year during Open Season.

• Ask your provider about generic alternatives.

• Check the tier placement of any ongoing or newly prescribed drug.

• Use preferred pharmacies and track out-of-pocket costs carefully.

• Contact your plan or a licensed agent listed on this website if you’re unsure whether your prescriptions are covered efficiently.

Doing these simple tasks in advance can help you avoid unexpected bills and ensure you make the most of the new Part D cap.

Why You Shouldn’t Let the Cap Fool You

The new $2,000 cap is a welcome improvement, but it doesn’t eliminate the complexities of drug coverage under PSHB and Medicare. Tier structures, prior authorizations, network limitations, and formulary exclusions still exist—and they can all inflate your costs long before the cap kicks in.

Make sure you understand how your medications are classified, how much you’re likely to pay before the cap is reached, and what actions you can take to reduce those expenses. If you have questions about your specific situation, get in touch with a licensed agent listed on this website for help understanding your plan’s drug coverage in 2025.