By Barbara Wilcox, SHIP Counselor

(Updated 1/10/2025)

The biggest changes in 2025 that affect the most people are in Medicare prescription drug coverage. There is a new $2000 annual cap on out-of-pocket expenses for prescriptions, in both Medicare Part D plans and Medicare Advantage plans. There is also a new optional payment plan to help spread out your prescription expenses over the months of the year.  The changes are due to additional cost-savings for Medicare beneficiaries contained in the Inflation Reduction Act, passed by Congress in 2022.  So, no matter whether you get your prescription drug coverage through a Part D plan or a Medicare Advantage plan, these changes apply to you in 2025.  (These changes don’t apply to Pre-1991 Retirees who are on the guaranteed Company health plan.)

$2000 Annual Cap on Out-of-Pocket Expenses

This annual cap replaces the old phases of coverage (Initial Coverage, Coverage Gap aka Donut Hole, Catastrophic Coverage).  Instead, copays and coinsurance that you pay when you pick up a prescription (or order from a mail-order pharmacy) are constant all year long.  Once these out-of-pocket expenses (including any deductibles) reach the $2000 cap, you pay nothing the rest of the year.  This change is especially beneficial to people who have high drug costs, because they take expensive, brand-name drugs or have many prescriptions.

In 2025, the maximum allowed deductible will be $590, but different plans have different deductibles.  Most plans don’t charge deductibles on all tiers of drugs.  Regardless, of the details of your plan, anything you pay toward a deductible counts as an out-of-pocket expense and counts toward the $2000 cap.

People who have low drug costs to begin with will not benefit from this out-of-pocket cap, because they may never pay that much in a year anyway. The people who will benefit do pay high out-of-pocket costs, and in many cases, they may pay the entire $2000 very quickly, within the first month or two of the year, when they first fill their prescriptions.  This leads to the second change I want to tell you about. Read on.

Medicare Prescription Payment Plan

This plan is designed to spread out your out-of-pocket costs over all twelve months of the year rather than your paying it all up front. The formulas they use to do this are complicated, so let me give you an example. 

Juan fills a $500 prescription each month.  The first column shows his monthly costs under the new $2000 annual limit on out-of-pocket costs.  His expenses are all concentrated in the first four months of the year.  The second column shows his monthly costs if he enrolls in the Medicare Prescription Payment Plan.  His expenses are spread out over all twelve months of the year.

Adapted from DRCOG Area Agency on Aging Medicare Updates

To enroll in a Medicare Prescription Payment Plan, contact your Part D Plan or your Medicare Advantage Plan.

Questions?  Contact your local SHIP office.  To locate your local SHIP office, call 1-877-839-2675.