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In 2025, Medicare will undergo some of the most significant changes in a generation. Changes to Medicare will include a $2,000 limit on out-of-pocket Part D drug costs, an opt-in payment plan, and some potential broad changes in Medicare Advantage plans. Most result from the Inflation Reduction Act.
“It’s going to be a tough open enrollment because nothing like this has happened in Medicare since the inception of Medicare Part D in 2006,” said Jason Rubin, an independent insurance agent in Southern California who specializes in Medicare, among other coverage. “These are uncharted waters. I feel it’s going to take a couple of years to stabilize, and 2025 is like a test to see how well 2026 is going to work.”
Key Takeaways
- Medicare changes include the elimination of the Medicare “donut hole” and a limit on how much you’ll have to pay out of pocket for covered prescription drugs.
- There will be a new payment plan you can opt into to spread out your medication costs.
- In response to these changes, insurers will likely change pricing and coverage for Medicare Advantage and Part D plans.
- Medicare Advantage beneficiaries should receive a letter in the middle of 2025 about unused benefits.
- Other changes impact the availability of mental health care, prior authorization use, and unpaid caregiver support for Medicare recipients with dementia.
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1. You Won’t Spend More Than $2,000 for Drug Copays and Coinsurance Under Part D
In 2025, a new approach will replace previous confusing and frustrating Medicare Part D phases, including the elimination of the infamous “donut hole” and a new hard limit of $2,000 per year for out-of-pocket Part D drug spending.
This limit, Rubin said, is “good for people who take a lot of drugs and pay a lot in copays because they can blow through $2,000 quickly.”
Here’s how the phases will work:
- Deductible phase: If your Medicare Advantage drug plan or standalone Part D plan requires a deductible, you’ll pay 100% of your prescription drug costs until you spend $590, which is the Part D deductible for 2025.
- Initial coverage: You’ll pay 25% coinsurance for covered drugs until you’ve paid $2,000 out of pocket.
- Catastrophic: After you’ve hit the $2,000 threshold for out-of-pocket spending on your medications, you pay nothing else out of pocket for 2025. Part D enrollees who reach the catastrophic threshold will save about $1,300 on drug costs in 2025 compared to 2024, according to a Kaiser Family Foundation (KFF) review. In future years, the $2,000 limit will increase due to inflation.
Unfortunately, these out-of-pocket limits do not apply to Part B drugs provided by a medical professional in an outpatient hospital setting. Chemotherapy treatments, for example, may fall into this category.
Important: Your premium is how much you pay every month for your Part D or Medicare Advantage plan. Your premium does not count toward your Part D drug deductible.
2. Medicare Advantage Plans That Include Part D May Raise Costs or Reduce Coverage
Medicare Advantage plans that include prescription drug programs (MAPDs) may change or introduce new premiums, formularies, and copays. They may also increase drug deductibles or reduce benefits.
David Lipschutz, co-director of the Center for Medicare Advocacy, says insurers may take these actions because, in addition to becoming more responsible for Part D costs due to the $2,000 out-of-pocket cap, they also received a limited increase in government payments for 2025. Medicare Advantage plans are partly funded by Medicare.
“This year, the plans didn’t get as much raise in payments as anticipated,” Lipschutz said. “They get paid considerably and overpaid by all independent estimates. To grow profit margins, plans may cut benefits and pull out of unprofitable areas, but these are business decisions.”
He warns Medicare beneficiaries to be on the lookout for changes to other parts of Medicare Advantage plans, too, including costs and coverage changes for their doctor or other providers.
One of Rubin’s biggest concerns is that some plans might remove costly drugs from their formularies—their lists of covered prescription medications. Federal rules require that some specific drugs be included in certain categories of formularies. However, insurers could still make changes, such as making you jump through more hoops to get coverage.
“Your doctor may need to give clinical information on why that drug is necessary for you, or you’ll have to first try another drug through step therapy, such as a generic,” Rubin added. “Then, once the non-formulary drug is approved, we don’t know the cost.”
Some MAPD plans may also shed dental coverage or switch to preventive-only coverage, although more comprehensive dental coverage is a top priority for many people who enroll in Medicare Advantage.
Note
In 2024, the Medicare Payment Advisory Commission (MedPAC), an independent agency that advises Congress on Medicare issues, found that the government’s payments to Medicare Advantage (MA) plans are 22% higher than what Original Medicare would pay to cover the same, healthier-than-average enrollee group.
3. You Can Choose to Pay Your Drug Copays and Coinsurance Over Time
In 2025, you can spread out the cost of medications over a period of months rather than paying everything you owe every time you pick prescriptions up from the pharmacy. A new optional payment plan can ease budgeting, particularly for expensive drugs.
While we don’t know yet exactly how the payment plans will work, you’ll likely opt into the plan with your Medicare Part D provider, according to the Patient Access Network (PAN) Foundation, a nonprofit organization that helps people with certain diseases pay for prescription medications. Once you opt in, you’ll pay monthly bills for covered out-of-pocket prescription costs up to the $2,000 per year limit.
Your month-to-month amount will change depending on the cost of your drug, the month you filled the prescription at a pharmacy, and any premiums or deductibles due. However, because out-of-pocket expenses are capped at $2,000 annually, you won’t pay more than $166.67 per month ($2,000 divided by 12).
4. Part B and Standalone Part D Premiums May Change
Your Part B premium changes every year. In 2025, it will likely increase, although the change hasn’t yet been announced. And as mentioned above, if you get your benefits from a Medicare Advantage company, those premiums may change.
Premiums for standalone Part D plans may change, too, if insurers try to offset the $2,000 out-of-pocket maximum. But they likely won’t increase as much as they could have.
That’s because of actions the government has taken to soften premium increases. In late July, the Centers for Medicare Services (CMS) said it was concerned about “disruptive enrollment shifts in the PDP [prescription drug plan] market” as the Inflation Reduction Act was implemented, making insurers more responsible for your Part D catastrophic phase.
Part D plans were slated to increase premiums for millions of people who couldn’t afford the price jumps, potentially doubling or tripling, Rubin said.
So CMS soon announced a voluntary, nationwide, one-year “demonstration” or experiment to help stabilize premiums for standalone Part D plans. A demonstration is a federal agency’s policy plan to test something for a limited time; the program can be extended or ramped up later. Participating plans get money from the government to help contain premium costs.
The experiment limits any Part D year-over-year premium increase in 2025 to $35. Plans can choose to continue to participate for two more years.
Note
The CMS previously conducted similar demonstrations to ease major Medicare program changes, including offering premium subsidies for low-income Medicare recipients.
5. Other Standalone Part D Costs Could Increase
Although most Part D plans sold outside of Medicare Advantage won’t be able to change premiums much in 2025, but you may see new deductibles, and formulary drug tiers could change in makeup and cost. “Tier 3, 4, and 5 drugs may have a percentage cost,” or coinsurance, versus flat copays, Rubin said.
At least one Part D drug plan with premiums of $0 to 40 cents per month will soon start charging premiums of $20 a month, he said, depending on where you live in the U.S.
6. You’ll Receive a Mid-Year Notice About Unused Medicare Advantage Benefits
If you’re a Medicare Advantage enrollee, you’ll get a new letter in mid-summer 2025. Between June 30 and July 31, 2025, you’ll receive a personalized “Mid-Year Enrollee Notification of Unused Supplemental Benefits.” This letter will list any supplemental benefits such as vision or dental coverage that you haven’t used in the first six months of 2025 and include:
- The benefit’s scope
- Cost-sharing for the benefit
- Instructions on how to access the benefit
- Network information
- Customer service number to call for more information
The letter attempts to address the issue of unused benefits and unspent funds being funneled back into Medicare Advantage marketing efforts rather than providing services. A 2024 Commonwealth Fund survey found that three out of 10 MA recipients didn’t use any available benefits.
In 2022, almost 100% of Medicare Advantage plans offered at least one supplemental benefit, with 23 supplemental benefits as a median. The most frequently provided benefits through Medicare Advantage plans include vision, hearing, fitness, and dental benefits.
“On one hand, you have plans offering attractive supplemental benefits to induce people to enroll, and the plans get extra money for offering extra benefits,” Lipschutz said. “Review the benefits plans offer and use them if needed.”
7. You’ll Have Better Access to Lower-Cost Biosimilar Prescription Drugs
The CMS is finalizing changes to increase Part D insurance providers’ ability to make midyear biosimilar drug substitutions for an FDA-approved formulary product.
A biosimilar drug is close in structure and function—but not completely identical—to the original biological medicine and is often available at a lower cost. (Biosimilars are not the same as generics, which are bioequivalent to the original brand-name drugs.) Biosimilar medications are used for many conditions, including diabetes, chronic skin conditions, arthritis, and some cancers.
This Medicare change in 2025 could increase your immediate access to lower-cost medications without a wait.
8. Your Access to Mental Health Professionals May Increase
Starting in 2025, more mental health providers can enroll as Medicare providers, including addiction counselors, licensed mental health counselors (LMHCs), and marriage and family therapists (LMFTs).
Medicare Advantage plans must verify (such as through claims data or electronic health records) that a newly added counselor or therapist has provided behavioral health services to at least 20 patients within the past 12 months.
This step hopes to help broaden verified covered services and specialists and combat what Senate Finance Committee Chair Ron Wyden, D-Ore., called “ghost networks,” or plan networks featuring providers unavailable to patients. Those providers may have left the network, are no longer seeing new patients, or are otherwise unavailable—leading to beneficiary frustration and unmet mental health needs.
9. Medicare Advantage Plans Must Examine the Impact of Prior Authorizations
Almost all Medicare Advantage enrollees must get prior authorization for higher-cost services to manage healthcare usage and lower costs. Denials for coverage have risen in recent years, and although most denials are overturned on appeal, the vast majority (9 out of 10) aren’t appealed. These prior authorization requirements and burdensome processes impose barriers and delay care.
In 2025, Medicare Advantage plans must evaluate how prior authorization policies impact certain at-risk populations and publicly display analysis results on their websites.
Then starting in January 2026, insurers must respond to prior authorization requests in seven calendar days (shortened from 14).
These changes follow a 2024 change stating that Medicare Advantage plans’ requirements for prior authorization can’t lead to more restrictive coverage than traditional Medicare. They can only confirm a diagnosis or the medical necessity of a requested service.
Other Medicare Changes
Other CMS announcements have laid out more than a dozen changes to Medicare in coming years. Here are two that may impact you soon.
- Dementia Support Programs: In 2025, a new program called Guiding an Improved Dementia Experience (GUIDE) will offer services to people with dementia and their unpaid caregivers, aiming to keep patients at home longer.
- More Part D Drugs Negotiated: In 2023, Medicare negotiated prices for 10 of the highest-spending, brand-name Part D drugs without competitors, and it published prices in 2024. CMS will negotiate prices for 15 more drugs in 2025, with prices going into effect in 2027.
How to Deal With 2025 Medicare Changes
Both experts we spoke with said few beneficiaries actively compare plans and make changes. Most beneficiaries simply let their current plan renew. In 2025, it’s critical to pay attention to changes, Lipschutz said.
“We say this every year, but because of the [Inflation Reduction Act] changes, you need to shop around and ensure your drugs are covered under your plan,” Lipschutz said. “Unfortunately, MA and Part D private plans have built a system for savvy, active, and engaged consumers. The system relies on people to compare choices and make decisions in their best interest.”
“But often, that just doesn’t happen,” Lipschutz said. “People decide based on the premium or brand name, don’t compare plans at all, or go through it once, say they’re done, and stick with what they have. Inertia prevents people from doing the homework they should be doing.”
Review Your Annual Notice of Changes (ANOC) Letter
Carefully look over your letter. Your ANOC will arrive in September 2024 and outline changes to your MA plan in 2025. It will include changes to your:
- In-network provider list
- In-network pharmacy list
- Drug list or formulary
- Cost changes
Tip: If you want to switch Medicare Advantage plans or return to Original Medicare, you can do so during open enrollment, which runs from Oct. 15 to Dec. 7. (There is a separate Medicare Advantage open enrollment period from Jan. 1 to March 31.)
Review Drug Coverage and Costs
Ensure any medications you take today are still covered, and determine if the drug’s tier (and your costs) have changed.
Work with an agent who gives you the time you need to run through all your medications and see what plan comes back as the best fit for you, Rubin advised. You can also go to Medicare.gov and type your drugs there, or call Medicare directly at 800-MEDICARE to ask which plans best suit you. Compare the cost and best advice.
Review Costs Holistically
The costs that impact your budget go far beyond your monthly premiums. Your deductibles, copays, and ease of access to services all figure into the final amount. Can you afford any changes outlined regarding the premium, provider and pharmacy networks, maximum out-of-pocket costs, or copays or coinsurance?
“While premiums are an important factor, we urge consumers not solely to rely on monthly premiums when choosing a plan,” Lipschutz said. “If you always go for the lowest premium, you may get what you pay for. Low premiums often mean higher costs or a less robust formulary, which applies to MA plans too.”
Tip: Consider enrolling in an insurer’s payment plan to spread your costs through monthly payments instead of having to pay everything upfront.
Look for a Recommended Agent or SHIP Representative
It’s hard to tell if a salesperson leads you toward a plan just to earn a commission, Lipschutz said. “The process is opaque from the consumer standpoint, who has no idea that an agent or broker is earning a commission to encourage an enrollment.”
You can find an agent recommended by friends or family or attempt to get help from a State Health Insurance Assistance Program (SHIP), which provides free Medicare counseling. But he warns that these programs can get overwhelmed because they’re often underfunded.
Frequently Asked Questions (FAQs)
What Medicare Changes Are Coming Up for Seniors in 2025?
Older adults may notice changes that include lower out-of-pocket costs for Part D drugs and the opportunity to set up a medication payment plan. For 2025, carefully review the Medicare Advantage and Medicare Part D Plan Annual Notice of Change (ANOC) letter you receive. This letter will share changes specific to your plan.
How Does Medicare Drug Coverage Work in 2025?
Part D coverage will involve three simple stages: a deductible phase, in which you pay your deductible; an initial coverage phase, when you’ll pay 25% of your covered medication costs until you reach your $2,000 out-of-pocket limit; and the catastrophic phase. In the catastrophic phase, all medication costs are covered. However, remember that this Part D approach does not apply to Part B, which covers medications you receive in the hospital.
What Are Some Concerns with Medicare Advantage Plans?
The Commonwealth Fund’s 2024 Value of Medicare Survey found that more MA plan beneficiaries said they experienced care delays because of prior approval requirements, or they couldn’t afford care because of unaffordable copayments or deductibles.
The Bottom Line
Medicare changes for 2025 aim to reduce beneficiary medication costs and expand access in various ways. However, everyone’s situation is different. These broad changes may have significant changes to your coverage and costs, or barely impact you. Reviewing your plan for 2025 for anything surprising or worrisome regarding your plan network, drug coverage, or out-of-pocket costs is more important than ever this year.