2025 Income Reduction Act (IRA) – How will if affect your Medicare Advantage or Prescription Drug Plan

Upcoming Changes to Medicare Prescription Drug Plans and Medicare Advantage in 2025: What You Need to Know

Starting in 2025, major changes are coming to Medicare prescription drug plans and Medicare Advantage as a result of the Inflation Reduction Act (IRA). These updates aim to lower drug costs and improve affordability for seniors and others enrolled in Medicare.

Key Changes to Look For:

1. Out-of-Pocket Spending Cap

Medicare Part D enrollees will benefit from a new cap on out-of-pocket costs. Starting in 2025, individuals will not pay more than $2,000 annually for prescription drugs, reducing financial strain for millions of beneficiaries. This is a significant shift, as the 2024 cap on spending was a $8,000.

2. Smoothing Payments
For those with high prescription drug costs, Medicare will introduce a payment “smoothing” option in 2025, allowing beneficiaries to spread their out-of-pocket expenses across the year. Instead of paying large sums upfront, you can opt for monthly billing.

Here’s an example:
Let’s say in January, you pick up a three-month supply of Eliquis, Lisinopril, and Atorvastatin. Your plan has a $600 deductible, and Eliquis, a costly tier 3 medication (with a retail price around $594), requires you to pay this deductible. Lisinopril and Atorvastatin, being on tiers 1 and 2, don’t apply to the deductible.

For Eliquis, you’ll pay $600 in January to cover your full deductible. Then, for the remaining two months, you’ll be responsible for 22% of Eliquis’ cost, which totals $260. Add this to the deductible, plus the cost of your other medications, and your total would be over $860 for the quarter.

However, with the “smoothing” option, you can spread that $860 over 12 months, resulting in a manageable $72 monthly payment. If you refill Eliquis in April, since the deductible is already covered, you’d only pay 22% of the retail price—about $392. This could also be spread over the remaining nine months, adding around $44 to your monthly payments, totaling $116 per month.

3. Expanded Price Negotiations
Under the IRA, Medicare will be empowered to negotiate prices for certain high-cost drugs, starting with a limited list of medications. Over time, the program will expand, with the goal of lowering prices for the most expensive and widely used medications.

4. Enhanced Medicare Advantage Plans
Medicare Advantage (Part C) plans will also see adjustments to align with the new cost-saving measures. While the details are still emerging, expect greater transparency on plan costs, improved drug coverage, and enhanced benefits as Medicare works to rein in overall healthcare expenses.

What It Means for You
These changes are a direct response to rising healthcare costs, especially for Medicare beneficiaries who rely on expensive medications. If you’re on Medicare, be sure to review your 2025 plan options carefully to maximize the benefits of these reforms. For many it may increase their out of pocket costs because many plans will likely add prescription deductibles. For those with very expensive medications it’s likely to help reduce the out of pocket costs. In 2025 the prices for medications won’t be negotiated by Medicare, it isn’t until 2026 that we can expect the first 10 medications to be negotiated. The first 10 medications are:

• Eliquis
• Jardiance
• Xarelto
• Januvia
• Farxiga
• Entresto
• Enbrel
• Imbruvica
• Stelara
• Fiasp; Fiasp FlexTouch; Fiasp PenFill; NovoLog; NovoLog FlexPen; NovoLog PenFill

Until then we can expect these medications to have similar costs as they do now in 2024 but likely with a deductible to contend with. With the upcoming monthly payment plan options this will help spread out the burden.

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