For the first time since its inception, Medicare Part D premiums for the upcoming year weren’t released in the typical July timeline. The Centers for Medicare and Medicaid Services (CMS) has focused on updates to limit cost increases for Medicare Part D premiums, aiming to stabilize costs, especially given their potential impact during election season.
Base premium cap
CMS set a 6% cap on annual increases for base Part D premiums, a restriction applying specifically to plans with minimum benefits. This means that for 2025, the standard base premium will rise to $36.78, an increase of $2.08 from the 2024 level. However, this cap does not apply to plans offering broader benefits, where many beneficiaries may see higher increases. Plans that go beyond the base may pass on added costs to beneficiaries, with higher premiums likely for plans covering a wider range of medications.
Out-of-Pocket spending limit for Part D enrollees
A landmark shift under the Inflation Reduction Act (IRA) will introduce a $2,000 out-of-pocket spending cap for prescription drugs in 2025. Previously, out-of-pocket spending could reach catastrophic levels, especially for high-cost medications. This $2,000 cap marks a major change, limiting total personal spending for beneficiaries and saving those who rely on expensive prescriptions on annual costs. For example, individuals who hit the catastrophic threshold for brand-name drugs could save approximately $1,300 in 2025 compared to 2024 costs.
Reduced cost burden for insurers and drug manufacturers
With the cap on out-of-pocket expenses, insurers and drug manufacturers are required to absorb a larger share of the costs. Medicare Part D plans will cover 60% of drug costs for high-cost prescriptions beyond the $2,000 threshold, up from 15% in 2024. Meanwhile, Medicare’s direct reinsurance contributions will decrease to 20% for brand-name drugs and 40% for generics, lower than in previous years. Drug manufacturers will also provide a 20% discount on brand-name drugs above the cap, contributing to stabilizing premium costs for beneficiaries.
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Additional adjustments
To help control premium costs further, CMS is transitioning Part D into a “voluntary demonstration project” for 2025, which limits premium increases to no more than $35 annually. Additionally, CMS will increase payments to Part D insurers per policyholder, aiming to prevent excessive premium spikes. This project’s duration remains uncertain, with the potential for additional adjustments in 2026 based on how these initial changes perform.
High-income Medicare Part D beneficiaries
High-income Medicare beneficiaries will continue to face Income-Related Monthly Adjustment Amounts (IRMAA), additional premiums based on income. For 2025, individuals earning over $106,000 and joint filers over $212,000 will see an added IRMAA fee for both Medicare Parts B and D, potentially increasing annual healthcare costs. The 2025 income brackets are set based on 2023 Modified Adjusted Gross Income (MAGI) to keep IRMAA fees aligned with inflation.
Insurer market changes
Amid these structural changes, some insurers are reconsidering their Medicare Part D market presence. Reduced profitability or high administrative costs may prompt some providers to exit the market or scale down coverage, impacting plan variety for beneficiaries. The CMS projects may help mitigate premium hikes, but beneficiaries should expect fewer choices and narrower coverage for certain drugs, potentially requiring closer review of plan options during open enrollment.
