The Centers for Medicare & Medicaid Services (CMS) continues to implement provisions of the Inflation Reduction Act (IRA) to make prescription drugs more affordable. Here are the significant changes to Medicare Part D for 2025 that you need to know about.
Overview of 2025 Part D Redesign
On April 1, 2024, CMS released the final instructions for the Calendar Year (CY) 2025 Part D Redesign Program. The updates fall into three main categories: updated costs for beneficiaries, restructured phases and liabilities (who pays and when), and modified true out-of-pocket (TrOOP) categories.
Beneficiary Cost Updates for 2025
1. Annual Deductible Increase
In 2025, the annual deductible for Medicare Part D will increase from $545 to $590, a $45 rise. Part D sponsors cannot set deductibles higher than this amount, though they can choose lower deductibles or none at all. Beneficiaries must pay 100% of their prescription drug costs until they meet their deductible (if they have one) (Hinshawlaw) (Huff Insurance).
2. Lower Out-of-Pocket (OOP) Threshold
Starting in 2025, the OOP threshold for Part D enrollees will be capped at $2,000. This cap means beneficiaries will spend less before entering catastrophic coverage. Currently, the OOP threshold is $8,000, which includes certain payments made on behalf of beneficiaries. For example, almost the full cost of brand-name drugs, including manufacturer discounts, counts towards this total. The Kaiser Family Foundation (KFF) reports that enrollees using only brand-name drugs spend about $3,300 out-of-pocket before reaching catastrophic coverage, so the new cap could save beneficiaries around $1,300 (Hinshawlaw) (Huff Insurance).
Restructured Part D Phases and Liabilities
Currently, Medicare Part D has four phases: annual deductible, initial coverage, coverage gap, and catastrophic coverage. In 2025, CMS will eliminate the coverage gap phase, simplifying the structure to three phases where beneficiaries will spend money in only two phases (The National Law Review) (Business Insurance).
1. Annual Deductible Phase
- Beneficiaries pay 100% of drug costs until the deductible is met.
- Once the deductible is met, beneficiaries move to the next phase.
2. Initial Coverage Phase
- Beneficiaries pay 25% coinsurance for covered Part D drugs.
- Insurance carriers cover 65% of applicable drugs and 75% of other covered Part D drugs.
- Drug manufacturers, through the Manufacturer Discount Program, cover 10% of the cost of applicable drugs.
- Beneficiaries move to the catastrophic phase once they reach the $2,000 OOP threshold.
3. Catastrophic Phase
- Beneficiaries pay no cost-sharing for covered Part D drugs.
- Insurance carriers cover 60% of all covered Part D drug costs.
- Drug manufacturers cover 20% of applicable drug costs.
- CMS provides a reinsurance subsidy covering 20% of applicable drug costs and 40% of other covered Part D drug costs.
Manufacturer Discount Program Phase-In
CMS is gradually introducing the Manufacturer Discount Program for certain drugs from qualifying manufacturers. This phase-in will span several years:
- Initial Coverage Phase: From 2025 to 2028.
- Catastrophic Phase: From 2025 to 2030.
During this phase-in period, Part D sponsors will cover the additional costs that would otherwise be handled by manufacturer discounts. This shift is aimed at redistributing liability between manufacturers and Part D sponsors to ease the burden on Medicare (Hinshawlaw) (The National Law Review).
Modified TrOOP Categories
The Inflation Reduction Act (IRA) has also revised what counts towards True Out-of-Pocket (TrOOP) costs for 2025. TrOOP includes what beneficiaries pay out-of-pocket for their prescriptions, such as deductibles, copayments, and coinsurance, along with specific other payments made on their behalf (e.g., State Pharmaceutical Assistance Program payments, AIDS Drug Assistance Programs). Premium payments do not count towards TrOOP (Hinshawlaw) (Business Insurance).
TrOOP Changes for 2025:
- Included: Payments for previously excluded supplemental benefits provided by Part D sponsors and Employer Group Waiver Plans.
- Excluded: Payments under the new Manufacturer Discount Program, which replaces the Medicare Coverage Gap Discount Program.
Since TrOOP determines when beneficiaries enter different coverage phases, these changes could affect how quickly they move through the phases (Hinshawlaw) (Business Insurance).
Medicare Prescription Payment Plan
Starting in 2025, Part D enrollees can manage their out-of-pocket costs through capped monthly payments, thanks to the new Medicare Prescription Payment Plan. This means beneficiaries won’t have to pay the full cost of their covered drugs upfront at the pharmacy (Huff Insurance) (The National Law Review).
Manufacturer Discount Program Details
In 2025, CMS will replace the Coverage Gap Discount Program (CGDP) with the Manufacturer Discount Program. This change is part of eliminating the coverage gap phase. The IRA shifts more liability to manufacturers, particularly in the catastrophic phase:
- Initial Coverage Phase: Manufacturers will cover 10% of applicable drug costs.
- Catastrophic Phase: Manufacturers will cover 20% of applicable drug costs.
Certain small and specified manufacturers will follow a discount phase-in period over the next five years (Hinshawlaw) (Business Insurance).
How the Discount Program Works:
- If a beneficiary doesn’t meet their plan’s deductible but meets TrOOP requirements, they will be eligible for the Discount Program.
- If the beneficiary meets the plan’s deductible but is not eligible for the Discount Program, the Part D sponsor will cover the costs that would have been covered by the manufacturer discount.
This ensures that beneficiaries won’t owe more than their deductible and 25% coinsurance in the initial coverage phase. Unlike the CGDP, manufacturer discounts under the new program are available regardless of whether the enrollee receives a low-income subsidy, and these discounts do not count towards the enrollee’s incurred costs (The National Law Review) (Huff Insurance).
For more details, refer to CMS’ Manufacturer Discount Program Final Guidance.
The Future of Part D
As Part D continues to evolve, we must adapt to these changes. Although the IRA aims to control costs and shift more liability to carriers and manufacturers, beneficiaries may see a rise in premiums. This could make it harder for Part D plans to compete with Medicare Advantage Prescription Drug (MAPD) plans, pushing more beneficiaries towards Part C.
While these are the main changes for Part D in 2025, there are additional updates regarding reinsurance methodology, EA benefit design, and more. For further information, see CMS’ Final CY 2025 Part D Redesign Program Instructions Fact Sheet (Hinshawlaw) (Huff Insurance).
Sources and Citations
- Centers for Medicare & Medicaid Services. “2025 Part D Redesign Program Instructions.” Accessed May 13, 2024. CMS
- Kaiser Family Foundation. “Medicare Part D: A First Look at Prescription Drug Plans in 2025.” Accessed May 13, 2024. KFF
- National Council on Aging. “Changes to Medicare Part D in 2025.” Accessed May 13, 2024. NCOA
- AARP. “What You Need to Know About Medicare Part D Changes in 2025.” Accessed May 13, 2024. AARP
By keeping up with these changes, you can better understand how your clients’ Medicare Part D plans will be affected in 2025.
