2025 Medicare Changes from the Inflation Reduction Act (IRA)
The Inflation Reduction Act (IRA) was a law that went into effect in 2022 and included several provisions impacting prescription drugs. These provisions are being rolled out over the next few years, with significant changes occurring in 2025. These changes are outlined below.
- $2,000 cap on out-of-pocket drug spending
Under the IRA additional consumer protections have been added to limit the out-of-pocket prescription costs. Starting in 2025, out-of-pocket drug spending for those with Medicare Part D (including a Medicare Advantage Plan with prescription drug benefits) will be capped at $2,000 annually. This is a reduction from the 2024 out-of-pocket limit of $8,000.
Note that this $2,000 cap will not apply to:
- Out-of-pocket spending on Part B covered drugs
- Out-of-pocket spending on drugs not covered by a Part D plan.
As part of changes implemented by the IRA, plans will no longer include a coverage gap (also called the doughnut hole) or catastrophic coverage. Once a Medicare beneficiary spends $2,000 in the deductible and initial coverage phases, they will pay $0 out-of-pocket for the rest of the year. A report from KFF estimates that this change will result in an average of $3,100 in annual savings for those who use brand-name drugs.
- Implementation of the Medicare Prescription Payment Plan
The new Medicare Prescription Payment Plan is optional and will allow people with Medicare prescription drug coverage to spread out the costs of their prescription drugs over the calendar year. This program DOES NOT provide savings on total prescription costs. However, this option may help even out monthly expenses for those with a high deductible cost early in the year, or those taking expensive drugs that would reach the $2,000 out-of-pocket cap before the end of the year.
For Medicare beneficiaries who opt into the MPPP program, the experience should look like this:
- Their prescription would be fulfilled and picked up at the pharmacy without making a payment.
- The beneficiary would receive a monthly bill from their Part D Prescription Plan (or Medicare Advantage Plan that includes Part D coverage) for the cost-sharing amount they must pay.
- The cost-sharing amount would be calculated based on what prescriptions are fulfilled to allow more balanced monthly payments throughout the year.
If you have had high out-of-pocket costs for prescription drugs you will receive information about how to join the Medicare Prescription Payment Plan from your current Part D prescription plan provider this fall. Signing up for this plan is completely optional and is done through your current prescription drug plan. A Medicare beneficiary with Part D prescription coverage can opt into the program before the beginning of a plan year during the Open Enrollment Period, or in any month during the year
NOTE: The Medicare Prescription Payment Plan does not reduce the total cost of prescription drugs. If a Medicare beneficiary needs help lowering the cost of prescriptions - Medicare Savings Programs and Medicare’s Part D Low Income Subsidy program (also called “Extra Help”) are programs that help reduce premium and prescription costs for individuals who qualify based on income and resource limits. We strongly encourage individuals to check their eligibility for these programs before considering participation in the Medicare Prescription Payment Plan.