4 Major Changes to Medicare Prescription Plans You Need to Know

With Medicare open enrollment underway, an important change is coming next year that everyone needs to know. Starting in 2025, Medicare Part D will undergo some of the most significant changes in its history, driven by the Inflation Reduction Act of 2022. These changes, including eliminating the “donut hole,” capping out-of-pocket costs, introducing new cost-smoothing options, and adjusting how premiums can increase, are designed to make prescription drug costs more affordable. Here’s what to expect:

1. Elimination of the “Donut Hole”

Historically, Medicare Part D enrollees encountered a coverage gap known as the “donut hole,” where the cost of covered prescriptions would increase once the amounts you and your plan paid for your drugs hit a certain limit (currently $5,030 in 2024). This structure required beneficiaries to pay up to 25% of their drug costs until reaching the “catastrophic” phase ($8,000 in 2024), after which Medicare covered most remaining expenses.

Starting in 2025, the donut hole will be fully eliminated. Instead, enrollees will pay no more than 25% of their drug costs until they reach a new annual out-of-pocket maximum. This adjustment will simplify coverage and reduce gaps, giving beneficiaries more consistent, predictable prescription costs throughout the year.

2. $2,000 Out-of-Pocket Maximum

One of the most significant changes for Medicare beneficiaries is the introduction of a $2,000 out-of-pocket cap on Part D drug expenses. This cap will potentially lower costs and provide peace of mind for those managing chronic conditions or taking higher tier drugs. Once an individual reaches the $2,000 threshold in any given year, they won’t need to pay any additional out-of-pocket expenses for covered drugs for the rest of the year.

This reform provides major financial relief, especially for those who rely heavily on prescription drugs. For enhanced Part D plans with additional benefits, certain out-of-pocket credits may apply, allowing some beneficiaries to reach this cap even sooner.

3. Medicare Prescription Payment Plan (Cost Smoothing)

To ease the burden of high one-time costs, the Inflation Reduction Act introduced an optional “smoothing” payment plan. This allows Part D enrollees to spread their out-of-pocket drug costs over the year, reducing the strain of large, upfront payments. With the smoothing option, someone who reaches their $2,000 cap early in the year can choose to pay smaller, more manageable amounts across 12 months.

This is particularly beneficial for seniors on fixed incomes, as it helps make monthly budgeting more predictable.

4. Premium Stabilization Measures

With the $2,000 out-of-pocket cap potentially impacting insurance company revenue, Medicare is enacting premium stabilization measures to limit hefty premium increases. CMS has announced that base Part D premiums will be limited to a maximum annual increase of 6% starting in 2025.

This cap on premium growth is intended to prevent beneficiaries from facing sharp premium spikes and is coupled with greater federal reinsurance support for certain high-cost medications. These efforts aim to keep Medicare affordable for the millions of beneficiaries relying on it, although individual plan premiums may vary slightly.

Why It’s Important to Review Your Options

Although the 2025 changes to Medicare Part D will generally reduce costs, it’s essential to evaluate your current plan to ensure it aligns with your needs. Depending on your specific prescriptions, budget, and out-of-pocket preferences, you might benefit from switching plans.

A licensed Medicare insurance agent can help you navigate these changes and ensure you’re making the most of Medicare’s new structure. Although we do not sell insurance products at Kotys Wealth Professionals, we know how important insurance is to our clients, especially retirees. If you’d like to discuss your retirement plan with an advisor who will take all of your financial needs into consideration, please give us a call at 219-465-6924.

Mark Rosinski, CFP®, CPA 

Wealth Advisor 

mark@kotyswealthpro.com

** Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Kotys Wealth Professionals (“KWP”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from KWP. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. KWP is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of KWP’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a KWP client, please remember to contact KWP, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. KWP shall continue to rely on the accuracy of information that you have provided or at www.kotyswealthpro.com. Please Note: IF you are a KWP client, please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.