Medicare drug plans are getting better next year. Some will also cost more

When Pam McClure learned she would save nearly $4,000 on her prescription drugs next year, she said, “It sounded too good to be true.” She and her husband are both retired and live with a “very strict” budget in central North Dakota.

By the end of this year, she will have spent nearly $6,000 on her medications, including a medication to control her diabetes.

McClure, 70, is one of about 3.2 million people with Medicare prescription drug coverage whose drug out-of-pocket costs will rise to $2,000 in 2025 as a result of the Biden administration's Inflation Reduction Act of 2022, according to an Avalere/AARP study. Dollars will be limited.

“It’s wonderful – oh my God. We would actually be viable,” McClure said. “Maybe I can afford fresh fruit in the winter.”

The IRA, a climate and health care law that President Joe Biden and Vice President Kamala Harris touted on the campaign trail as one of their administration's greatest achievements, radically redesigned Medicare drug benefits, called Part D, which covers about 53 million people age 65 and older cared for or with disabilities. The government estimates that about 18.7 million people will save about $7.4 billion next year alone by limiting out-of-pocket spending and making less publicized changes.

The annual enrollment period for Medicare beneficiaries to renew or switch drug coverage or select a Medicare Advantage plan began October 15 and runs through December 7. Medicare Advantage is the commercial alternative to traditional government Medicare and covers medical care and often prescription drugs. Medicare's stand-alone drug plans, which cover medications commonly taken at home, are also administered by private insurance companies.

“We always encourage beneficiaries to take a close look at plans and choose the best option for them,” Chiquita Brooks-LaSure, director of the Centers for Medicare & Medicaid Services, told KFF Health News. “And this year it’s especially important to do that because the benefits have changed so much.”

The improvements to Medicare drug coverage required by the IRA are the most sweeping changes since Congress added the benefit in 2003. However, most voters don't know about it, KFF polls have shown. And some beneficiaries may be surprised by a downside: premium increases for some plans.

CMS said Sept. 27 that nationwide, the average premium for Medicare drug plans fell by about $1.63 per month — about 4% — compared to last year. “People enrolled in a Medicare Part D plan will continue to receive stable premiums and have a wide choice of affordable Part D plans,” CMS said in a statement.

However, an analysis by KFF, a nonprofit health information organization that includes KFF Health News, found that “many insurers are increasing their premiums” and that major insurers, including UnitedHealthcare and Aetna, also reduced the number of plans they offer.

Many Part D insurers' original premium proposals for 2025 were even higher. To cushion the price shock, the Biden administration launched a so-called demonstration program to pay insurers an additional $15 a month per beneficiary if they agree to limit premium increases to no more than $35.

“Without this demonstration, premium increases would certainly have been larger,” Juliette Cubanski, deputy director of the Medicare policy program at KFF, wrote in her Oct. 3 analysis.

Almost all Part D insurers agreed to the agreement. Republicans have criticized it, questioning CMS's authority to make the additional payments and calling them a political ploy in an election year. CMS officials say the government has taken similar actions in implementing other Medicare changes, including under President George W. Bush, a Republican.

In California, for example, Wellcare's popular Value Script plan rose from 40 cents per month to $17.40. The Value Script plan in New York went from $3.70 per month to $38.70, a more than tenfold increase – and exactly a $35 increase.

Cubanski identified eight plans in California that increased their premiums by exactly $35 per month. KFF Health News found that premiums have increased for at least 70% of drug plans offered in California, Texas and New York, and for about half of plans in Florida and Pennsylvania – the five states with the most Medicare beneficiaries.

Spokesperson for Wellcare and its parent company Centene Corp. did not respond to requests for comment. In a statement this month, Sarah Baiocchi, senior vice president of clinical and specialty services at Centene, said Wellcare will offer the Value Script plan without a premium in 43 states.

In addition to the $2,000 drug spending cap, the IRA limits Medicare copayments for most insulin products to no more than $35 per month and allows Medicare to negotiate prices for some of the most expensive drugs directly with drug companies.

This also eliminates one of the most frustrating features of drug benefits, a loophole known as the “doughnut hole” that suspends coverage just when drug costs rise, forcing them to pay the plan's full price for drugs out of pocket to pay You reach a spending threshold that changes from year to year.

The law also expands eligibility for “extra help” subsidies to approximately 17 million low-income people in Medicare drug plans and increases the amount of subsidies. Pharmaceutical companies must contribute to financing.

Starting January 1, the redesigned drug coverage will work more like other private insurance policies. Coverage begins after patients pay a deductible that will not exceed $590 for the next year. Some plans offer a lower or no deductible or exclude certain medications, usually inexpensive generics, from the deductible.

After beneficiaries spend $2,000 on deductibles and copays, the remaining Part D medications are free.

That's because the IRA increases the share of the bill that is picked up by insurers and pharmaceutical companies. The law also attempts to curb future drug price increases by limiting the increase in the consumer price inflation rate, which was 3.4% in 2023. If prices rise faster than inflation, drugmakers must pay Medicare the difference.

“Before the redesign, Part D incentivized drug price increases,” said Gina Upchurch, a pharmacist and executive director of Senior PharmAssist, a nonprofit in Durham, North Carolina, that advises Medicare beneficiaries. “The way it is designed now places more financial obligations on plans and manufacturers and puts pressure on them to help control prices.”

Another provision of the law allows beneficiaries to pay for medications in installments rather than having to pay a large bill over a short period of time. Insurers are expected to do the math and send policyholders a monthly bill that will be adjusted if medications are added or omitted.

In addition to the big changes the IRA brings, Medicare enrollees should prepare for the inevitable surprises that arise as insurers revise their plans for a new year. In addition to increasing premiums, insurers may waive covered medications and remove pharmacies, doctors or other services from provider networks that beneficiaries must use.

If you miss the opportunity to switch plans, coverage will automatically renew, even if it costs more or no longer covers needed medications or preferred pharmacies. Most beneficiaries are locked into Medicare drug and Advantage plans for one year unless CMS grants them a “special enrollment period.”

“We have a system that runs through private health insurance companies,” said CMS boss Brooks-LaSure. However, she noted that beneficiaries “have the opportunity to change their plans.”

But many don't take the time to compare dozens of plans that cover different medications at different prices at different pharmacies – even if doing so could save them money. In 2021, only 18% of Medicare Advantage drug plan enrollees and 31% of standalone drug plan members compared their plan's benefits and costs to those of competitors, KFF researchers found.

For free, unbiased help choosing drug insurance, contact the State Health Insurance Assistance Program at Shiphelp.org or 1-877-839-2675.

KFF Health News is a national newsroom that produces in-depth journalism on health issues and is one of KFF's core operating programs – an independent source of health policy research, polling and journalism. Find out more about KFF.

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