Big changes are coming to Medicare in 2025, and they could make a major difference in your prescription drug costs.
Thanks to the Inflation Reduction Act, Medicare beneficiaries will see the most significant updates to the program’s drug coverage since it was first introduced in 2006.
These updates are seen as a big win for many beneficiaries, especially those who take costly medications, but there are some important details and potential costs to keep in mind.
4 big Medicare changes for 2025
Medicare open enrollment runs from Oct. 15 to Dec. 7. During this annual event, people with Medicare can review plans and make changes to their Medicare coverage, which go into effect Jan. 1.
If you’re one of the more than 66 million people enrolled in Medicare, it’s important to understand upcoming program changes so you can make informed decisions.
With Medicare open enrollment well-underway, here’s everything you need to know.
1. $2,000 annual out-of-pocket drug cap
The Inflation Reduction Act, signed into law in 2022, green-lighted significant changes to the Medicare program. These measures roll out over time, and the newest provision goes into effect next year.
Starting in 2025, out-of-pocket drug spending will be capped at $2,000 per year and the prescription drug “doughnut hole” will be eliminated.
Here’s how the new system will work:
You’ll pay a deductible of $590 (up from $545 in 2024). Once you hit the deductible, you’ll pay 25 percent of your drug costs in the initial coverage phase until your out-of-pocket spending hits $2,000. Once you reach this limit, you’ll enter what’s known as catastrophic coverage and pay no additional out-of-pocket costs for prescription drugs.
This provision is expected to save Medicare enrollees about $7.4 billion annually, according to the Centers for Medicare & Medicaid Services (CMS). That translates to an average savings of nearly $400 per person for over 18.7 million beneficiaries in 2025, or about 36 percent of total Part D enrollment.
2. Some Part D plan premiums may increase — but the average cost is going down
While some Medicare beneficiaries will save money on health care costs thanks to the new $2,000 cap, especially those taking expensive brand-name medications, others could see their premiums rise.
Before we dive into the details, here’s a quick review of how Medicare enrollees receive prescription drug coverage.
The Part D market has two types of plans, both of which are administered by private health insurance companies that contract with the federal government and receive funding from CMS. One is a standalone plan that only offers drug coverage, and the other is Medicare Advantage plans that bundle drug coverage with other health services.
KFF, a nonpartisan health policy research organization, warns that some plans may adjust their premiums, formularies, copays or deductibles in response to the new $2,000 out-of-pocket spending cap. This is partly due to increased costs for insurers and limited increases in government payments.
A new program, the Part D premium stabilization demonstration, helps limit premium increases for Part D enrollees. This program caps monthly premium increases to $35 in 2024 and 2025.
So, at most, stand-alone drug plan premiums could increase by $35 per month over 2024 levels. But some plans may have more modest increases, or even decreases.
With that being said, the average Part D premium is going down, according to CMS. The estimated average Part D beneficiary premium is expected to decrease by $7.45 in 2025, falling to $46.50 in 2025 from $53.95 in 2024.
While it’s helpful to understand average drug plan costs, you’ll need to look at the premium of your specific plan — or any plans you’re considering switching to during open enrollment — to understand the true cost.
3. You can choose to pay your drug costs over time
Beginning in 2025, Medicare prescription drug plans must offer enrollees the option to spread their out-of-pocket prescription drug costs into monthly payments throughout the year, instead of paying them all at once at the pharmacy.
If you choose to opt into the Medicare Prescription Payment Plan, you’ll receive a bill from your Medicare Advantage or standalone Part D plan for your drug costs instead of paying at the pharmacy. There’s no extra cost to participate in the program.
To sign up or learn more, contact your Medicare prescription plan provider.
4. Potentially higher Medicare Part B premium and deductible
Your Medicare Part B premium and deductible changes every year. In 2025, it will likely increase, though the change hasn’t been announced yet. Medicare Part B covers a wide range of outpatient services, including doctor visits, outpatient surgeries and medical devices.
Medicare Part B premium and deductible costs are important information for beneficiaries. All Medicare enrollees pay these costs — whether they’re in a Medicare Advantage plan or Original Medicare.
Most enrollees have the Part B premium automatically deducted from their monthly Social Security check. It should be noted, though, that state cost-savings programs as well as programs through Medicare Advantage plans can help reduce or eliminate the Part B premium for lower income beneficiaries.
What to do during Medicare open enrollment
Medicare open enrollment takes place each year from Oct. 15 to Dec. 7. During this time, you can switch from Original Medicare to a Medicare Advantage plan (or vice versa), switch between Medicare Advantage plans or switch between Medicare Part D prescription drug plans.
You can review plans using the Medicare Plan Finder tool and enroll in a new plan online or over the phone.
When evaluating Medicare costs, consider factors beyond monthly premiums. Deductibles, copays and access to services all contribute to the overall cost. Choosing the lowest premium plan may not always be the best option. Lower premiums might mean higher out-of-pocket costs or limited drug coverage.
If you’re struggling to afford your Medicare costs, you may qualify for the Extra Help program. Those who are eligible typically pay up to $4.50 for a generic drug and $11.20 for a brand-name drug with Extra Help.
If you’re enrolled in a Medicare plan, you should have received an Annual Notice of Change letter in the mail in September.
Review this letter carefully. It will outline cost changes to your current plan as well as the drug list, also known as a formulary. Verify that your current medications are still covered and check to see if their tier level or your out-of-pocket costs have changed.
Get help from SHIP
Navigating Medicare can be complex. If you need help exploring your options, a network of free, federally funded programs can help.
The State Health Insurance Assistance Program (SHIP) provides one-on-one counseling, education and support to Medicare beneficiaries and their families.
Each state has its own SHIP program, though it may go by a slightly different name in your state, such as SHINE (Serving Health Insurance Needs of Everyone) in Florida or SHIBA (Senior Health Insurance Benefits Advisors) in Idaho.
A SHIP counselor can help you with many things, including comparing drug plans, identifying potential savings and answering open enrollment questions — all at no cost.
You can find your SHIP by using the online SHIP Regional Locator tool. Or you can call the national network hotline at 877-839-2675.
Bottom line
Medicare’s 2025 changes could make a big difference in your drug costs and the way you manage your payments. Take time during open enrollment to compare plans, confirm your medications are covered and check out options like the Extra Help program to reduce your costs.
Whether you’re a current Medicare enrollee or approaching eligibility, now’s the time to understand how these updates will affect your budget — and how you can make them work for you.
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