Big Changes Are Coming to Medicare in 2025. Are You Ready?
Every year from October 15 to December 7, Medicare opens up its Annual Enrollment Period (AEP), when participants are free to make changes to their coverages that will go into effect in the coming year. The Centers for Medicare & Medicaid Services also uses this time to announce changes to its health and drug plans, including costs, coverages and participating providers and pharmacies.
So, what’s coming for 2025?
Prescription Drug Coverage is Evolving
Updates to Medicare’s prescription drug coverage, in particular, will likely impact participants the most. As part of the Inflation Reduction Act of 2022, starting January 1, 2025 out-of-pocket spending will be capped at $2,000 for covered drugs (down from $8,000 in 2024) and Part D enrollees will have access to a new Medicare Prescription Payment Plan enabling them to spread out-of-pocket drug costs more evenly throughout the year if they wish. Medicare will also be closing the so-called “donut hole,” or the coverage gap that currently exists as a temporary limit on what Part D will pay for covered drugs. Once your drug spending reaches a certain threshold, you are currently required to pay 25% of the costs until you reach your out-of-pocket maximum, which is a holdover from a time when drug costs were not as high as they are now. Part D coverage will be changed to a three-phase benefit including a deductible, initial coverage phase, and catastrophic phase to remove this gap. There will be no initial coverage limit and the catastrophic phase will kick in as soon as the member reaches their annual out-of-pocket maximum.
Other changes to Medicare’s prescription drug coverage include:
Non-Creditable Coverage: Beginning in 2025 before fully rolling out in 2026, there are new determination criteria for “creditable coverage” in employer-provided health plans, removing the simplified verification method and instead requiring employers to complete an actuarial process using claims and demographic data. CMS requires that every Medicare-eligible American to have coverage that pays at least as much as standard Medicare Part D does for prescription drugs. If they are on a group plan through their employer, then that company is required to either prove that their offered coverage meets that standard, particularly for those on high deductible health plans that rely on Health Savings Accounts to keep costs down, or notify their employees that their coverage is not creditable. Given the new standards for Medicare Part D coming in 2025, some employer plans that were previously considered creditable will no longer qualify in the years ahead. For covered employees, once you are notified that your coverage is non-creditable you should enroll in Part D during your initial enrollment period to close that gap.
New Limits to Formularies: Under Part D, each plan’s list of covered drugs is known as its “formulary,” and Medicare classifies drug coverage by cost on different tiers. Lower tiered drugs typically cost less than those on higher tiers. In 2025, CMS is reducing the number of formularies it covers as part of the effort to reduce out-of-pocket costs for members.
Higher Premiums: All of these changes to Medicare Part D mean that premiums will be increasing in 2025 to $36.78 from $34.70 in 2024. This increase is effectively set by the Inflation Reduction Act, which provides for a premium stabilization that limits annual premium increases for Part D participants to about $2 per month. A limit of $35 will be imposed on year-over-year increases to a plan's total Part D premium, meaning that no plan's total Part D premium can increase by more than $35 from CY 2024.
Have questions about what’s coming for Medicare Part D and how it might impact your retirement? Set up an appointment to learn more or call (888) 372-3999.
Costs Up, Benefits Down
The new $2,000 cap on out-of-pocket drug costs is, not surprisingly, having a ripple effect on plans and benefits across the Medicare spectrum that could reduce your benefits and increase the cost of your Prescription Drug Plan (PDP) or Medicare Advantage plan. The limit applies to both traditional Medicare Part D policies as well as the drug coverage offered by Medicare Advantage plans. It does not apply to Part B drugs like drugs administered by your doctor, vaccines, etc.
Remember, however, that this new $2,000 cap only applies to prescription drugs, and only deductibles, copays, and coinsurance charges for covered drugs, not premiums or non-covered drugs. Original Medicare overall does not have an annual out-of-pocket limit, and only Medicare Advantage and Medigap plans are required to adhere to Medicare’s Maximum Out-of-Pocket (MOOP) limits. In 2025, the MOOP limit for Medicare Advantage plans will be $9,200.
As a result of these changes, insurance carriers are starting to adjust their coverages to make up the difference. Add-ons like vision, dental, hearing, transportation, etc currently under the umbrella of Medicare Advantage and could be changing or be reduced in the years ahead to offset new spending and lower out-of-pocket drug costs for participants. In addition, other costs associated with Medicare Advantage and PDPs are likely going up in 2025, including copays, premiums, and new deductibles.
Medicare Supplemental, or Medigap, plans are not directly affected by the coming changes introduced by the Inflation Reduction Act, but we expect to see new limits and costs there as well. As carrier costs rise for Medicare Advantage providers, they will likely work to spread those costs over all participants, increasing bills for Medigap recipients in the process. These supplemental plans also continue to struggle in the wake of COVID, as participants who did not get preventative care during the pandemic are now sicker and thus more expensive to cover, impacting rates.
If you’re on a Medicare Advantage plan you’ll want to review your coverage for 2025, set up an appointment to learn more, or call (888) 372-3999.
What Should You Do Now?
In August, the White House announced that the first 10 drugs had been selected for Medicare’s drug price negotiation program, predicting that the new lower prices would save Medicare beneficiaries $1.5 billion in out-of-pocket costs in the first year of the program alone. The list includes drugs widely used to treat blood clots, diabetes, heart disease, arthritis, and more, with savings of more than 50% on average for Medicare Part D participants.
This is just one more reason to take this time during this year’s AEP to review your plan, look over your coverage, and determine if your plan still best suits your needs. Even if you like your current plan, the upcoming changes might mean it’s time to consider a new option.
Need help deciding what’s best for you?
It can be very helpful to work directly with an agent in Michigan who is licensed and educated in the Medicare market and can help you choose the plan that is right for you. Your partners at Silvur Insurance are here to help and can meet with you one-on-one in your local MSUFCU Branch, over the phone, or even virtually - all, at no cost to you! To schedule a meeting with one of our agents, click HERE or call (888) 372-3999.
Sources:
https://www.cms.gov/priorities/key-initiatives/medicare-open-enrollment-partner-resources
https://www.cms.gov/newsroom/press-releases/biden-harris-administration-issues-final-guidance-help-people-medicare-prescription-drug-coverage
https://www.cms.gov/inflation-reduction-act-and-medicare/part-d-improvements/medicare-prescription-payment-plan
https://www.cms.gov/newsroom/fact-sheets/cms-releases-2025-medicare-part-d-bid-information-and-announces-premium-stabilization-demonstration
https://www.cms.gov/files/document/fact-sheet-medicare-prescription-payment-plan-final-part-one-guidance.pdf
https://www.cms.gov/files/document/final-cy-2025-part-d-redesign-program-instructions.pdf
https://www.sequoia.com/2024/07/medicare-part-d-creditable-coverage-changes-in-2025/
https://www.medicare.gov/drug-coverage-part-d/what-medicare-part-d-drug-plans-cover
https://www.cms.gov/files/document/final-2025-av-calculator-methodology.pdf
https://www.medicare.gov/health-drug-plans/medigap
