2025 Changes to medicare
Because of President Biden's new prescription drug law, in 2025, your yearly out-of-pocket drug costs will be capped at $2,000. If you have Medicare drug coverage (Part D) and your drug costs are high enough to reach this cap, you don’t have to pay a copayment or coinsurance for Part D drugs for the rest of the calendar year. Starting in 2025, you’ll also have the option of spreading your drug costs across monthly payments throughout the year.
Before the prescription drug law, millions of people with Medicare struggled to afford their prescription drugs. People with lower incomes and those under age 65 are also more likely to skip taking the medicine they need because of high costs.[1] The prescription drug law makes changes to Medicare Part D so that millions of people with Medicare will spend less on their prescriptions.
In addition to multiple provisions of the IRA that are already lowering costs for people with Medicare, Part D benefit improvements going into effect in 2025 include the following:
Beneficiary OOP spending is capped at $2,000 for 2025.
As in 2024, there is no beneficiary cost sharing above the annual OOP threshold in 2025.
The coverage gap phase (also known as the “donut hole”) will be eliminated, which will result in standard Part D coverage consisting of a three-phase benefit: a deductible phase, an initial coverage phase, and a catastrophic phase. There will be no initial coverage limit, and the initial coverage phase will extend to the maximum annual OOP threshold, at which point the catastrophic phase will begin.
The Coverage Gap Discount Program sunsets effective January 1, 2025, and is replaced by the Manufacturer Discount Program. Under the Manufacturer Discount Program, the manufacturer will typically pay a 10% discount for brand-name drugs and biologics in the initial coverage phase. In the catastrophic phase, the manufacturer will typically pay a 20% discount for brand-name drugs and biologics.
The reinsurance payment amount for Coverage Year (CY) 2025 for a Part D beneficiary will decrease from 80% of the allowable reinsurance costs incurred after the beneficiary exceeds the annual OOP threshold to 20% for brand-name drugs and biologics or 40% for generics. Amounts that previously would have been paid as reinsurance will, on average, shift to plans’ upfront calculation of costs and the upfront government subsidy.
Beginning in CY 2025, more payments by third-party payers will accrue as if they were beneficiary out-of-pocket costs, reducing beneficiary spending, including supplemental Part D coverage and coverage by other health insurers.
Overall, these changes mean that the government subsidy to Part D plans is shifting from largely being reconciled on the back end based on beneficiary costs (i.e., reinsurance payments) to a larger risk-adjusted government Part D subsidy payment upfront. By design, plans will have more liability requiring them to better manage costs within that upfront payment amount. The IRA also provides a premium stabilization mechanism to limit the average premium increases for people enrolled in Part D to about $2 per month on average. Due to both of these changes, a higher percentage of the plan bid amounts (i.e., plans’ estimates of expected costs for an average enrollee) will be paid by the government subsidy to plans, and thus changes to plan bid amounts do not reflect potential premium changes to enrollees.
I attached a link for the 2025 Official Medicare Handbook for your reference.