Big Changes Coming to Medicare in 2025
What's Changing in 2025 for Medicare
Some significant changes are happening in Medicare for 2025, most of which are good! Because of the Inflation Reduction Act of 2022, changes have been made to Medicare this year and for years in the future. Basically, prescription drugs have seen the biggest change. Previously, Medicare was responsible for about 80% of the cost of Prescription Drugs. In 2025 and beyond, the insurance companies and drug manufacturers are covering the 80% and Medicare's cost was reduced down to 20%.
Covered prescription drug costs are now capped at $2,000 per year
The biggest change is that "covered" prescription drug costs for people with Medicare have been capped at $2,000 for each calendar year. People DON'T know that IF your Medicare plan does not have a prescription deductible, your maximum prescription cost goes down to $1,410. Medicare is giving people without drug deductibles an automatic "credit" of $590, lowering your yearly maximum from $2,000 to $1,410. Most insurance agents and many Medicare agents are unaware of this.
It's important to point out that it only applies to "covered drugs," meaning only the prescription drugs that are covered in your insurance plan's drug formulary. This applies whether you have:
- A Part D Prescription Drug Plan, or
- A comprehensive Medicare Advantage Plan with a Prescription Drug component
It applies to both scenarios. For a deeper look at Part D specifically, see our breakdown of 2025 Part D prescription drug plan changes.
How do the Inflation Reduction Act impact Medicare Part D Rx plans in 2025?
To put it simply, the Inflation Reduction Act has shifted who pays for prescription drugs away from Medicare. Typically, Medicare covered about 80% of the cost of prescription drugs, and the carriers roughly paid about 20%. It was spread out a little bit, but that's basically what it was.
The Inflation Reduction Act makes the cost shift more to the carriers and the drug manufacturers versus Medicare. They kind of swap the 80/20, swapping from Medicare to the drug companies and the Part D drug plans. So that's why there's been such an impact in the way things are covered, how the formularies are set up, and why certain drugs are more expensive than others.
Medicare has eliminated the coverage gap ("Donut Hole")
Secondly, and almost as important, Medicare has eliminated the coverage gap, sometimes called the "Donut Hole" for drug costs. It's a big deal for people who take many prescriptions. Before 2025, if your drug costs and what you've paid for those drugs reached $5,030, you fell into the Donut Hole or Coverage Gap. That meant that you had to pay up to 25% of your covered Prescription Drug costs from $5,030 until the amount reached $8,000. So you can imagine how significant this change is for some people!
Medicare has announced the Prescription Payment Plan or "M3P" plan
Beginning in 2025, Medicare has announced the Prescription Payment Plan or M3P plan. When people opt into this, your Prescription Drug insurance company, whether it's a Medicare Advantage Plan or a standalone Part D Prescription Drug plan, has to estimate what your "anticipated" drug costs will be for the year and amortize the cost over the 12 months of the year (or the remaining months if you opt-in after January). Instead of having a giant Prescription Drug bill near the first of the year, it can be spread throughout the year.
Calculated, that means if your prescription drug costs are $2,000 and you opt into the plan, your monthly payment would be about $166 a month if you joined in January and a bit more each month if you opt-in later in the year. The term used to describe the amortization of drug costs is "smoothing."
My friend says the new Medicare drug payment plan in 2025 will help with her expensive medications. Would it help me too?
So this came about the first of this year for 2025 and is being continued into 2026. What it means is your Medicare Advantage plan or your standalone prescription drug plan. If you have a Medigap plan, they will enroll you automatically unless you opt out and roll you into this plan. What they do is look at your forecasted prescriptions that you're going to take throughout the year, and they amortize it over 12 months.
Again, the maximum you're going to spend in a calendar year for drugs for this coming year, 2026, is $2,100. If you don't have a drug deductible or you have a lower drug deductible, it's actually less than that. We can get into that later. But it will help you because what happens is at the beginning of the year when you go for your really expensive medications, you don't have to come out of pocket for the first three months of those medications right away. Right out of the gate, they'll spread it over. They call it smoothing. They'll spread it over 12 months, and you'll pay an equal amount every month. It's a really cool plan.
$0 Vaccines with MAPD, over-the counter hearing aids, & faster prior authorizations
Several other changes have already taken effect for people with Medicare:
- $0 Vaccines - People that have Part D Drug plans and people enrolled with a Medicare Advantage and Prescription Drug plan pay $0 for vaccines
- Over-the-counter Hearing Aids - Hearing Aids are available over the counter now
- Faster Prior Authorizations - Medicare has streamlined the "Prior Authorization" system to allow people to get faster answers for needed procedures
Changes come at a price - be aware of premiums & drug deductibles
All of these changes are good, but they come at a price. When insurance companies and drug manufacturers are made to absorb 80% of the costs, one of two things will happen: Prices will increase, or benefits will be reduced.
With Part D Prescription Drug carriers, most of them responded in one or more of these ways:
- Increased the monthly premium
- Instituted a $590 drug deductible where there was none before
- Removed expensive drugs from their formulary list
With Medicare Advantage Plans, some companies significantly pulled back benefits, and some instituted a drug deductible. When you compare benefits from 2024 to 2025, there are significant reductions, as in the comprehensive dental coverage that many Advantage Plans offer. In my case, my Advantage Plan's dental benefit in 2024 was $7,500 but was reduced to $500 in 2025.
For Medicare Part D, why would someone pick a plan with a high total cost?
Well, here's the thing with the Part D drug plans, it really has to do with what you need. What drugs and prescriptions do you need to have covered? You need to make sure your Part D drug plan covers your prescriptions on their formulary. If they're not on their formulary, they're not going to cover it.
So sometimes if you take expensive drugs or something in maybe tier four or tier five, which is usually where brand name drugs fall, some of the higher cost brand name drugs, you're going to need to spend a little more every month for your Part D drug plan. They would cover those drugs, but really, it's a math problem you need to solve. I’ve said this 100 times. You need to find an independent Medicare advisor that only does Medicare because you can't be an expert at everything. Find somebody local because they know the market, they know the area, and lean on their experience.
Look out for your Annual Notice of Change (ANOC)
Medicare beneficiaries are mailed an ANOC, an Annual Notice of Change each year. That is the required document that insurance companies, whether Part D drug or Advantage Plans, must send to their members in August or September. That document illustrates a side-by-side comparison of the current year's benefits and the upcoming year's benefits. It's a bit of an eye-opener when you can see the changes in black and white.
Get an independent Medicare advisor to help you
The upcoming Medicare changes are the biggest since 2006. In my opinion, they are good changes, but they come at a cost. We always encourage people to find an independent Medicare adviser who focuses only on Medicare. Independent Brokers' services are free and can make a world of difference in navigating the confusing waters of Medicare. You can also browse agents by state to find someone local who understands the plans available in your area.
Author Bio: Steve Brauer is a retired Police Sergeant who entered the insurance industry after an on-duty injury in 2003. Steve and his wife Sue, founded Variety Benefits Insurance Services, which focuses solely on Medicare. They are called the "Husband and Wife" Medicare Team, and their tagline is "We Translate Medicare into English."