7 Medicare Changes You’ll See in 2025

Key takeaways

• Changes introduced by the Inflation Reduction Act will be implemented next year.

• The reduced out-of-pocket cap for Part D drug plans eliminates the previous "donut hole."

• Weight loss medications may be covered for treating additional medical conditions.

• Your Medicare Advantage plan could undergo changes in the upcoming year.

• Expect a midyear statement from your Medicare Advantage plan.

• Caregivers of loved ones with dementia may qualify for respite care services.

• More mental health counselors are being encouraged to join Medicare as providers.

Thanks to the Inflation Reduction Act of 2022, Medicare has undergone some of its most significant changes in recent years, offering much-needed relief from the high costs of prescription medications. Here’s a look at some of the key updates:

• In 2023, Medicare placed a $35 monthly cap on insulin costs for those enrolled in Part D prescription drug plans and eliminated out-of-pocket expenses for recommended vaccines.

• In 2024, the government expanded eligibility for financial assistance through the Part D Extra Help program and announced the results of negotiations to lower the prices of 10 of Medicare’s most expensive drugs, with the new prices set to take effect in 2026.

1. $2,000 Cap on Out-of-Pocket Prescription Costs

The new $2,000 annual limit on out-of-pocket spending for prescription medications will apply to both stand-alone Medicare Part D plans and drug coverage included in Medicare Advantage plans.

“This is the first time in Medicare’s history that beneficiaries will have a cap on their out-of-pocket prescription costs,” said Dr. Meena Seshamani, director of the federal Center for Medicare, in an interview with AARP. “With such a major change, it’s crucial to carefully evaluate your options during open enrollment. There may be a plan that better fits your health and financial needs.”

This $2,000 limit covers deductibles, copayments, and coinsurance for medications included in the plan, but it does not apply to premiums or drugs that are not covered by the plan.

“It also does not apply to Part B medications, such as injections administered at a doctor’s office,” notes Gretchen Jacobson, vice president of Medicare at the Commonwealth Fund. The cap amount may be adjusted in future years based on rising Part D costs.

2. Elimination of the Part D 'Donut Hole' and Coverage Gap

Starting in 2025, Medicare Part D plans will no longer have the complex four-phase coverage structure. Previously, these plans included:

• Deductible Phase: You pay the full cost of your medications until your deductible is met (up to $545 in 2024).

• Initial Coverage Phase: You pay copayments that vary by medication.

• Coverage Gap ('Donut Hole'): Once your total drug costs reach $5,030 in 2024, you enter this phase where plans contribute less, particularly for brand-name drugs, and you may pay more for the same medications.

• Catastrophic Coverage Phase: After you spend $8,000 in out-of-pocket costs, catastrophic coverage begins, and you pay nothing for the rest of the year.

In 2025, the system simplifies. Part D plans can still have a deductible (up to $590), but once your total out-of-pocket expenses reach $2,000, you’re protected by a spending cap.

This change is expected to benefit millions of people. By April 1, 2024, over 1.7 million beneficiaries, or about 3.5 percent of people enrolled in drug plans, had already reached $2,000 in prescription costs, with more likely to do so by year-end, according to the Centers for Medicare & Medicaid Services (CMS).

For those with high prescription costs early in the year, Medicare will offer a Prescription Payment Plan in 2025, allowing enrollees to spread out their out-of-pocket payments over the year instead of facing large expenses all at once. While this doesn’t reduce overall costs, it can help with managing cash flow. To enroll in this payment plan, contact your Part D provider.

Premium Considerations: Some have raised concerns that lowering beneficiaries' out-of-pocket costs with the $2,000 cap could lead to higher premiums in 2025. While the Inflation Reduction Act imposes a 6 percent cap on base Part D premiums, it doesn’t limit the total premium individual plans may charge. Drug manufacturers, Medicare, and Part D plans will share costs above the cap, and the base premium for Part D in 2025 will be $36.78. However, actual premiums will vary by location and plan.

“The goal is to prevent beneficiaries from facing higher premiums due to the cap on out-of-pocket expenses,” explains Gretchen Jacobson from the Commonwealth Fund.

What to Expect: With these changes, expect significant variations in premiums, copayments, and covered medications during the 2025 open enrollment period. Pay close attention to the annual notice of change your plan will send in September, outlining any modifications.

Starting October 1, you can compare plans in your area using the Medicare Plan Finder. Open enrollment runs from October 15 to December 7, and you can get free assistance from your State Health Insurance Assistance Program (SHIP).