Medicare Open Enrollment: What to Know as You Enroll for 2025
Key changes will take effect this year as a result of the Inflation Reduction Act.
Medicare’s prescription drug coverage will change in important ways in 2025, as a result of the Inflation Reduction Act of 2022. So it’s especially important to evaluate your current coverage choices during this fall’s Medicare open enrollment period, which runs from Oct. 15 to Dec. 7.
If you are enrolled in traditional Medicare Parts A and B with a supplemental Medigap policy, there’s no need to review that coverage. But stand-alone Part D prescription plans should be reevaluated. And if you have chosen Medicare Advantage as an alternative to traditional Medicare, it makes sense to reevaluate this coverage, too, since many of these plans include drug coverage. (Unlike most employer-sponsored healthcare plans, you don’t have to reenroll in Medicare every year.)
The Inflation Reduction Act phased in a cap on out-of-pocket spending for the first time. This year, the cap is $3,300; the second and final step is a $2,000 cap that takes effect in 2025. This substantially strengthens Part D coverage and brings enormous relief to Medicare beneficiaries who are living with serious illnesses and chronic diseases. Until now, many have experienced out-of-pocket costs that can easily exceed the cap.
An AARP report found that 3 million to 4 million Part D enrollees will benefit from the new out-of-pocket cap every year between 2025 and 2029. On average, the report found that 1.4 million (40%) Medicare drug plan enrollees who reach the new out-of-pocket cap between 2025 and 2029 will save $1,000 or more, and just over 420,000 (12%) will see savings of more than $3,000.
One worry was that these reforms might result in higher premiums for many stand-alone drug plans as insurance companies seek to cover higher expected costs.
The Biden administration took steps to offset rate hikes for 2025 by offering a program that subsidizes drug plans, and many insurers signed on. But insurers participating in this program are permitted to raise premiums as much as $35 per month. Depending on what you pay now, that might be a substantial increase, making it worthwhile to explore options for new coverage.
Key Changes to Medicare Part D
Under the Inflation Reduction Act, several changes to Part D coverage will take effect in 2025. The big one is the new $2,000 cap—along with strengthening this insurance overall, it eliminates the complexity of payment structures under the old system (remember the “doughnut hole”?).
Things will be much more simple starting next year. You’ll see three levels of coverage:
A deductible phase of no more than $590 per year.
An initial coverage phase, where you pay 25% of overall drug costs.
The cap of $2,000, after which you pay nothing. (The cap does not include premiums or drugs that are not covered under Part D or are not covered under your Part D plan.)
But you may be able to find more favorable deductibles and co-pays.
“Sponsors have the option to offer enhanced or alternative plans that use a structure of cost-sharing that is more favorable for enrollees,” notes David Lipschutz, co-director of the Center for Medicare Advocacy.
Some plans might have lower deductibles or none at all, or lower cost-sharing. For more details on how Part D has been restructured, see this brief by KFF.
Also new this year is a Medicare Prescription Payment Plan option for seniors who struggle to afford prescription drugs. All plan sponsors are required to offer this option, which allows you to spread expected costs across the calendar year instead of paying in one lump sum.
Other Medicare cost-containment provisions of the Inflation Reduction Act already have been phased in, including:
A $35 monthly cap on the cost of insulin for diabetes patients.
Free vaccines, including the shingles vaccine and the combined tetanus-diphtheria-whooping cough vaccine.
An annual out-of-pocket cap of $3,300.
A penalty to drug companies for price increases that exceed the rate of general inflation.
Expanded eligibility for financial assistance with Part D costs for low-income seniors.
The Inflation Reduction Act also authorized Medicare to begin negotiating the price of prescription drugs with pharmaceutical companies for the first time. The first set of negotiations included 10 drugs, including the blood thinners Eliquis and Xarelto and the diabetes drugs Jardiance and Januvia.
Medicare reported a $6 billion reduction in spending, with more than half of the savings accounted for by just three drugs (Enbrel, Stelara, and Eliquis), according to analysis by the Brookings Institution.
Traditional Medicare vs. Medicare Advantage
During the open enrollment period, you can also switch between traditional Medicare and Medicare Advantage, the commercially offered managed care alternative to traditional Medicare.
Marketing for Advantage plans often stresses their lower premium costs: You won’t be paying for Medigap supplemental insurance, and prescription drug coverage may also be included.
But surveys of Medicare beneficiaries find that the proportion of beneficiaries who find their care affordable is no greater in Advantage than in traditional Medicare, according to a recent article in the Journal of the American Medical Association. And some Advantage enrollees may have more problems affording healthcare because of the cost of co-payments and deductibles.
Most Medicare Advantage enrollees pay only their Part B premiums (the standard premium is $174.70 this year) and out-of-pocket costs up to a certain limit. But that amount is significant, averaging $4,882 for in-network services and $8,707 for both in-network and out-of-network services, according to KFF.
“What we see is that some people are avoiding needed or recommended healthcare due to costs,” says Gretchen Jacobson, vice president of the Medicare program at the Commonwealth Fund, and co-author of the JAMA article.
Don’t move from Advantage to traditional Medicare without obtaining supplemental coverage to protect you from high out-of-pocket costs. That coverage could come from a Medigap supplemental plan, and some employers provide supplemental coverage to retirees.
How to Shop Your Medicare Coverage
Start by reviewing the Annual Notice of Change, or ANOC, that your current plan provider is required to send each fall. This will include the premium you’ll be charged in the coming year and the annual deductible. It will also tell you if coverage of your drugs will change or if changes are being made to your Medicare Advantage healthcare provider network.
Pay careful attention to any changes in the “tier” placement of the drugs you use. Plans typically group drugs into three to five tiers, with lower-cost drugs like generics in the lower tiers. The ANOC will show if a drug has moved from the first to the second or third tier; if that happens, you may face higher cost-sharing or rules such as prior authorization, quantity limits, or so-called step therapy—that is, requiring you to use a less expensive drug than one that your physician has prescribed.
Evaluate options where you live by visiting the Medicare Plan Finder, the plan-shopping website run by Medicare. Along with premiums, pay attention to plan deductibles and whether the plan covers all the drugs you take. Here, you’ll also want to scrutinize any coverage restrictions a plan might impose.
If you’re enrolled in Medicare Advantage, review your plan’s prescription drug coverage. Also, check on whether the providers you want to use are still included in the network. Unfortunately, the Medicare Plan Finder healthcare provider information often is outdated or inaccurate, so call the insurer to ask directly about coverage.
How to Get Medicare Help
Many Medicare enrollees rely on insurance brokers to help with plan selection. These folks can be very knowledgeable about their own plan offerings—but keep in mind that they don’t offer all the plan choices available in your region, and they have built-in financial incentives that can tilt the guidance they provide.
For a more holistic and balanced view of the market, contact your local State Health Insurance Assistance Program, or SHIP. The SHIP program offers comprehensive and unbiased guidance. The service is funded by the federal and state governments, and it provides free, expert help with Medicare. The Medicare Rights Center offers a counseling hotline at 1-800-333-4114.