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Medicare 101: 2025 Drug Coverages for Medicare Part D
By CalBroker Mag
Medicare is an essential insurance option for many. About 66 million Americans have Medicare coverage, and 78.4% have Part D drug coverage. However, the Inflation Reduction Act (IRA) of 2022 has led to many changes to drug coverage, and more are coming in 2025.
Understanding these new chnges will give you insight into deductibles, copays, spending caps, and expanded coverage so you can help your clients choose the best insurance that meets their needs.
New Coverage Phases
The first significant change in Part D coverage is to the program’s general structure. Part D currently has four phases of coverage: deductibles, initial coverage, coverage gap, and catastrophic phase. In 2025, CMS will remove the coverage gap phase and add a separate program, simplifying the phases.
Deductibles Phase
Part D starts with the deductibles phase, as usual. Your clients will pay a monthly premium and 100% of the gross drug costs for covered drugs until they spend $590 — up from $545 in 2024 — and meet the deductible.
Initial Coverage Phase
Once your client reaches the deductible, they’ll enter the initial coverage phase. In 2025, your client will pay a 25% copay for covered drugs, and the plan sponsor will pay 65% or 75% of all other medicines, depending on the specific medication.
Coverage Gap Phase Replaced With Discount Program
The current Part D structure includes a coverage gap where the plan sponsor temporarily limits drug coverage after the enrollee and the plan spends $5,030 in covered meds.
Once in the gap, your clients are responsible for 100% of drug costs. However, manufacturers discount drugs
at 70% or 75% via the Coverage Gap Discount Program. So, enrollees pay a maximum of 25% of drug costs, and the manufacturer pays 75%, or 70% and 5% for the plan.
In 2025, CMS will eliminate the coverage gap. Enrollees will stay in the initial coverage phase until they reach a new lower out-of-pocket maximum. The Coverage Gap Discount Program will become the Discount Program. In this adjusted phase:
• Enrollees pay a 25% copay for covered drugs
• The plan sponsor pays 65% or 75% of covered drugs
• The manufacturer covers 10% of applicable drugs
• The initial phase now ends once the enrollee meets the new out-of-pocket maximum.
Catastrophic Phase
In the current structure, the catastrophic phase starts once enrollees reach $8,000 in out-of-pocket spending. In this phase, copays stop, and enrollees pay nothing for covered drugs for the rest of the year.
In 2025, your clients will still have no copays in the catastrophic phase. However, the out-of-pocket limit is lower. Sponsors pay 60% of covered drugs, the manufacturer pays 20%, and CMS pays a reinsurance subsidy of 20% of applicable meds and 40% of all others.
Out-of-Pocket Maximums for Lower Drug Costs
The IRA established several new requirements and programs to help lower the overall cost of medications for enrollees. These include spending caps, changes to cost-sharing, and inflation rebates.
Out-of-Pocket Cap
In 2025, CMS will lower the out-ofpocket spending limits to help reduce overall drug costs for enrollees. The lower limit also simplifies coverage. For 2025, enrollees will now only pay a maximum of $2,000 in out-of-pocket spending.
• Fees that count toward out-ofpocket costs will include:
• Enrollee's out-of-pocket payments for covered drugs
• Payments manufacturers make for enrollee's covered drugs
Enrollees will also have the option to spread out-of-pocket payments over the calendar year instead of paying a large sum all at once.
Higher Cost-Sharing in the Catastrophic Coverage Phase
CMS also changed the cost-sharing structure in the catastrophic phase. Medicare uses a reinsurance subsidy to help pay for drugs in this phase, but the drug type will now determine the calculation method.
In 2025, Medicare’s share of the cost will decrease from 80% to 20% for brand-name drugs and 40% for all other covered generic drugs. Plan sponsors and manufacturers will now be responsible for covering higher portions of the drug costs.
Inflation Rebates
The new Inflation Rebate Program will also offer discounts if the plan sponsor raises drug prices faster than the inflation rate. For Part D drugs, the rebates apply only to certain drugs and biologics. However, manufacturers can ask CMS to lower the amount of rebate available if a drug is on the drug shortage list or part of a severe supply chain disruption.
Lower Insulin Costs
The Inflation Reduction Act sets limits on insulin costs, improving insulin coverage through Medicare Part D plans. The new limit started in January 2023 and will remain in place for 2025.
Insulin coverage includes:
• A maximum cost of $35 for a one-month supply of insulin through a covered prescription
• No deductibles on insulin
The cap on insulin costs will apply even if enrollees buy more than one month's supply at a time. The plan cannot charge your clients more for bulk buying.
More Vaccine Coverage Without Cost-Sharing
Medicare Part D plans will continue to include more vaccine coverage without extra costs. Enrollees can get any vaccine the Advisory Committee on Immunization Practices recommends without paying a copay or a deductible. These include vaccines for shingles, Ebola, dengue, and others, based on the guidelines for administering.
Substitutions Without Prior Approval
Finally, CMS will offer Part D plan sponsors more flexibility to substitute drugs without approval from CMS. The goal is to increase access to effective medications, potentially at a lower cost.
Midyear Substitutions
In 2025, Part D plan sponsors will now have the ability to update the formulary midyear and substitute biosimilar drugs without needing approval from CMS. Biosimilar drugs are similar in structure to other drugs that are already authorized for use. Before this change, every plan sponsor had to receive explicit approval before making a change. Starting in 2025, CMS will treat these as maintenance changes. However, plan sponsors must give enrollees a 30-day advance notice of the changes.
Interchangeable Substitutions
Plan sponsors will also have the ability to make immediate substitutions for new interchangeable biologicals. This means that plans can instantly swap biological products with new similar products that might not have been on the market when they submitted the original formulary for approval. Plans must give advance notice of the change to enrollees.
Looking to 2025
The Inflation Reduction Act significantly impacted Medicare Part D coverage. Some changes are already in force, and more are coming for 2025. Staying up-to-date on these changes gives you deeper insights to help you understand how coverage will look and how it will affect your clients.
SOURCES:
Centers for Medicare and Medicaid Services: “Medicare Monthly Enrollment, Final CY 2025 Part D Redesign Program Instructions Fact Sheet.”
Medicare: “Yearly Deductible for Drug Plans, Costs in the Coverage Gap, Catastrophic Coverage, Saving Money With the Prescription Drug Law, Saving Money With the Prescription Drug Law.”
Centers for Medicare and Medicaid Services: “Fact Sheet: Medicare Prescription Drug Inflation Rebate Program Revised Guidance., Contract Year 2025 Medicare Advantage and Part D Final Rule (CMS-4205-F).”