How Will the Inflation Reduction Act Impact Medicare in 2025 and Beyond

President Biden officially signed The Inflation Reduction Act into law in August 2022. It signaled one of Congress’s biggest actions for decades in a bid to drag inflation down to a more bearable level. Amongst the many implementations and ideas, part of this act focused on “Bringing Savings to Real People” by offering financial relief for those with Medicare through expanding benefits, lowering drug costs, and strengthening Medicare for the future. 

The Inflation Reduction Act officially started in 2023, though we’re more interested in what’s to come within the next 12 months. The bigger picture of the law begins on January 1, 2025, and will bring sizeable changes to Medicare Part D Prescription drug plans. These changes apply to individuals on standalone Part D and Medicare Advantage Plans – but how will you be affected? 

This guide will go through the proposed changes to discover the cost of Medicare in 2025 and what the Inflation Reduction Act means for prescription drug costs. 

New Medicare Rules 2025 Under The Inflation Reduction Act

We’ve already seen a few changes to Medicare since the Inflation Reduction Act was signed into law a couple of years ago. However, the more substantial changes are yet to come and will be seen towards the end of 2024 going into the beginning of 2025 – and beyond. 

Specifically, you will experience the following alterations to Medicare Part D: 

• Capping out-of-pocket drug spending – Starting in 2025, anyone with a Medicare Part D benefit will see their out-of-pocket drug costs capped at $2,000. This is one of the big advantages of the Inflation Reduction Act as it offers more financial protection for beneficiaries. You know you’ll never have to pay more than this amount out of your pocket for essential prescription medication. It’s reported that Part D enrollees who only take brand-name drugs and have costs high enough to meet the catastrophic threshold may see their annual out-of-pocket costs fall from $3,300 all the way down to the $2,000 limit. 

• Medicare donut hole in 2025 eliminated – Many Part D enrollees know the dangers of the so-called “Donut Hole” in Medicare. This is the Coverage Gap, which requires you to pay a higher percentage of drug costs after you and your plan have spent a set amount on covered drugs. It leads to high spending for those in need of medication, so you’ll be pleased to note this is being scrapped in 2025.
  
  Instead, CMS notes that Part D coverage will now consist of a three-phase benefit – a deductible phase, the initial coverage phase, and a catastrophic phase. You won’t have to deal with an initial coverage limit and it extends to the $2,000 maximum annual OOP threshold. When it bypasses this, the catastrophic phase will begin. 

• Changes to the Coverage Gap Discount Program – The ending of the donut hole also means the Coverage Gap Discount Program will close in 2025. Previously, this program made medication more affordable in the Coverage Gap by giving a 75% discount on the retail price. The Inflation Reduction Act will bring in a new Manufacturer Discount Program on January 1, 2025, meaning drug manufacturers will pay a 10% discount for brand-name drugs in the initial coverage phase and a 20% discount in the catastrophic phase. 

• Reinsurance payment amounts to decrease significantly – Part D beneficiaries will see reinsurance costs reduce from 80% down to 20% for brand-name drugs or 40% for generics. This is done to address the huge worries surrounding rising Medicare reinsurance costs which led to nearly half of total Part D spending in 2022! 

• Able to spread the cost of OOP costs – Part D enrollees can start spreading their OOP costs across the year rather than facing high costs in one month. It allows more financial flexibility than ever before. 

• Drug price negotiations incoming – This change won’t happen until 2026, but Medicare Part D drugs will be selected for price negotiations. The core goal here is to reduce the overall cost of these essential drugs, making them more affordable and accessible for those who need them. 

What Do The Medicare Part D Changes in 2025 Mean To You?

Generally, the Inflation Reduction Act has been met with arguments from both sides of the fence. Many see the benefits this brings to Medicare beneficiaries while others worry it can put a stranglehold on drug innovation and cause significant financial problems across various industries. 

If you’re currently enrolled in a Medicare Part D Prescription Drug Plan or a Medicare Advantage Plan, you’re likely to be affected in the following key ways: 

• See a decreased overall cost of obtaining prescription drugs
• Enjoy a cap of $2,000 for out-of-pocket drug costs
• Pay significantly less in reinsurance costs
• See a slight Part D premium increase due to Inflation Reduction Act changes

That final point worries many beneficiaries. All of these changes will result in a minor increase to your current premiums, but it shouldn’t be too substantial. Initial reports suggest you’ll be paying a couple of dollars more per month – but this is also likely to fall in the years following these new changes. 

What Should You Do To React To These Changes?

You will receive an Annual Notice of Change letter in September from the insurance companies. Read through this as it should explain more about the cost of Medicare in 2025 and what the changes mean for your plan. 
Additionally, we can provide more help and assistance as you navigate these substantial changes to Medicare Part D. Please don’t hesitate to reach out and contact Jason Rubin Insurance Services today. We’re available via national and local phone lines – or you can fill in a contact form on our website and we will give you a call instead. As experts in this field, we will help you with any and all questions relating to the IRA and your Medicare Part D prescription drug plan.