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Annual limit of $2,000 for prescription drug costs in Part D
Beginning in 2025, people with Medicare Part D will have an annual limit, capping their out-of-pocket prescription drug costs at $2,000. In the years that follow, annual limits will be adjusted based on inflation. This cap does not apply to out-of-pocket spending on Part B drugs. Medicare Part B covers drugs that are administered by a doctor, nurse, or other healthcare provider in an outpatient setting such as a doctor’s office. For example, some cancer drugs and injectable drugs are covered under Part B.Read more about the Part D cap below.
This will have the biggest impact on people with Part D who have expensive medications and who don’t qualify for the Extra Help program.
For example, someone who usually has drug costs high enough to reach the catastrophic threshold could save about $1,300 in 2025, compared to their 2024 spending.
Option to smooth out-of-pocket prescription drug costs in monthly installments
Beginning January 1, 2025, each Medicare prescription drug plan, including Medicare Advantage plans with drug prescription programs, must give patients the option to pay for their out-of-pocket prescription costs in monthly installments, with a monthly limit on spending. At PAN, we have called this provision smoothing, as it more evenly distributes costs throughout the year.Please note that patients will need to enroll in smoothing. Monthly payment plans will not be automatic.
Read more about part D smoothing below.
Cost and coverage impacts
Changes to insurance coverage
These changes will not affect an individual’s current Medicare enrollment and should not impact decisions during open enrollment. During open enrollment, we encourage people to select plans that best match their current prescription and medical needs.The Medicare reforms apply to all Part D plans and Medicare Part C or Medicare Advantage plans that have prescription drug coverage. Medicare HMO plans are included if they offer drug coverage. The reforms do not apply to supplemental insurance or Medigap plans, or Red, White & Blue insurance, which covers Parts A and B of the Medicare program.
| Medicare reforms apply to | Medicare reforms DO NOT apply to |
| All Part D plans | Supplemental insurance |
| Medicare Part C—or Medicare Advantage—plans with prescription coverage | Medigap plans |
| Medicare HMO plans, if they offer prescription coverage | Red, White, and Blue insurance |
These reforms should not impact your medication choices
Medicare reforms, such as the Part D cap and smoothing, apply to all medications covered by the Medicare program, including those on specialty tiers. No drugs are excluded. You will not have to change medications in order to benefit from the Part D cap and smoothing. The Medicare reforms will apply if you are taking a brand or generic medication.What medication is best for you is a decision between you and your healthcare provider. During the open enrollment period, we recommend that you pay close attention to any changes in your current plan related to medications you may need, and carefully review a potential new plan’s drug coverage and related copays and coinsurance.
Out-of-pocket prescription drug costs after the new reforms
In 2024, after paying the initial deductible, a person on Medicare will pay 25 percent of drug costs. They will have a cap of about $3,300 and will no longer pay five percent of drug costs in the catastrophic phase.In 2025, after paying the initial deductible, a person on Medicare will pay 25 percent of drug costs. They will not spend more than $2,000 a year in out-of-pocket costs for their prescription medications. (The annual cap amount will be adjusted based on inflation in the years that follow.)
Cost-sharing in the catastrophic phase has been decreased for 2024 and will be eliminated in 2025. Patients will continue to pay copays at the pharmacy counter until they reach the Part D cap of $2,000 in 2025.
Changes to Medicare Part D premiums
The Inflation Reduction Act included a provision that prevents “Medicare Part D base beneficiary premiums” from increasing more than six percent each year. Unfortunately, the base beneficiary premium is not the same as the amount that Part D enrollees pay for coverage, and the law did not cap the growth in individual plan premiums to six percent. Health plans use the base beneficiary premium to calculate their plan’s basic premiums, but they also consider other factors.This IRA premium provision is effective from 2024 to 2029, so the base beneficiary premium is limited to six percent increases each year, but plans are not limited in other increases.
Patients should carefully review their plans during open enrollment to ensure they are considering all out-of-pocket costs and coverage.
Using discount cards and drug manufacturers’ assistance
By law, drug manufacturer patient assistance programs cannot assist people with federal insurance, including Medicare. Drug manufacturer assistance programs support people who are uninsured and people with commercial insurance. For example, manufacturer coupon cards may be available for those with commercial insurance seeking access to particular branded medications.About the Part D cap
The $2,000 cap does not apply to prescriptions under Part B
The $2,000 cap only applies to Medicare Part D plans and Medicare Advantage programs with prescription drug plans and does not apply to drugs covered under Medicare Part B.The cap only applies to covered medications
The Part D cap only applies to medications that are covered by a patient’s Medicare prescription drug plan. Part D plans may choose to not cover certain drugs. However, they are required to cover medications that fall into one of the six protected classes: immunosuppressant (organ transplant), antiretroviral (HIV/AIDS), antidepressant, antipsychotic, anticonvulsant (seizures), and antineoplastic (cancer). Drug plans must cover at least two drugs in other categories.If you are prescribed a drug that is not covered by your prescription drug plan, here are some options:
- If the non-covered prescription drug is a brand-name medication, ask your doctor whether a generic equivalent might work (if there is one).
- Find out whether there are any other prescription drugs in your plan’s formulary that would be effective.
- Your physician can try a formulary exception, a request to obtain a Part D drug that is not included on a plan’s formulary. If the plan denies the request, there is an appeals process.
- During the Open Enrollment Period, October 15-December 7, evaluate the plans available to you. You might find one that covers your needed medication.
Tracking payments toward the cap
The patient’s Part D plan or Medicare Advantage drug plan will be tracking costs and will determine when the cap has been met.Income requirements for the Part D cap
Anyone with a Medicare Part D plan or who is enrolled in a Medicare Advantage program with a prescription drug plan will automatically have a Medicare Part D cap in 2025. There are no eligibility requirements, including income.About Part D smoothing
A new name for smoothing
The Centers for Medicare & Medicaid Service (CMS) are using a new name to describe “smoothing.” It will now be the Medicare Prescription Payment Plan.Medicare Prescription Payment Plan timeline
Beginning in 2025, anyone with a Medicare Part D prescription drug plan will have the option to enroll in the monthly payment plan, either before the beginning of the plan year or in any month during the plan year. The opportunity to enroll is not income-based.The Medicare Prescription Payment Plan only applies to out-of-pocket costs for prescription medications. Payments will not include premiums.
Monthly payments under the Medicare Prescription Payment Plan
While CMS has not finalized how the Medicare Prescription Payment Plan will operate in 2025, preliminary guidance suggests the following:- The Medicare Prescription Payment Plan is completely voluntary; patients will need to “opt-in” to the program.
- Participants will not have any monthly bills until they opt into the program AND have out-of-pocket prescription costs.
- Once a participant has out-of-pocket prescription costs, they will be billed on a monthly basis. This will continue as long as they remain part of the Medicare Prescription Payment Plan.
- All out-of-pocket costs will be billed monthly, including costs during the initial deductible phase. In other words, participants will not need to spend a certain amount out-of-pocket before they can join the program.
Monthly bills will be calculated by starting with the annual out-of-pocket maximum, which in 2025 will be $2,000. First, the plan will subtract any Part D costs the participant paid out of pocket before joining the monthly program. Then, the plan will divide the remaining costs across the remaining months in the plan year. CMS will be developing monthly calculators to help patients know what their monthly costs will look like, and to determine if enrolling in the Medicare Prescription Payment Plan makes sense for them.
Consider the following example:
A woman named Ruth is interested in the Medicare Prescription Payment Plan, and she enrolls in January 2025. She has no out-of-pocket costs in January, but she fills her first prescription in February. Her out-of-pocket responsibility is $1,030.37.
- Step one: Determine Ruth’s total annual out-of-pocket maximum, which is $2,000 in 2025.
- Step two: Subtract Ruth’s out-of-pocket costs before she joined the Medicare Prescription Payment Plan. She had none, so this total is $0.
- Step three: Calculate Ruth’s monthly payments, by dividing her total costs across the remaining months in the plan year. Ruth filled her prescription in February, so she will divide her payments over 11 months. Her out-of-pocket prescription cost is $1,030.37, so that amount will be divided across 11 months. Her monthly bill will be $93.67.
Remember, the annual cap will begin at the same time as the Medicare Prescription Payment Plan, so the maximum amount a person with Medicare Part D will pay is $2,000 per year.
| Month | OOP Costs Incurred | Maximum Monthly Cap | Monthly Participant Payment |
| January | $0 | $166.67 | $0 |
| February | $1,030.37 | $93.67 | $93.67 |
| March | $0 | $93.67 | $93.67 |
| April | $0 | $93.67 | $93.67 |
| May | $0 | $93.67 | $93.67 |
| June | $0 | $93.67 | $93.67 |
| July | $0 | $93.67 | $93.67 |
| August | $0 | $93.67 | $93.67 |
| September | $0 | $93.67 | $93.67 |
| October | $0 | $93.67 | $93.67 |
| November | $0 | $93.67 | $93.67 |
| December | $0 | $93.67 | $93.67 |
| Total | $1,030.37 | $1,030.37 |
[EXTERNAL LINK] - Everything you need to know about Medicare reforms - PAN Foundation
