Quiet Policy Change Could Lead to Substantial Savings for People in Medicare Prescription Drug Plans

Millions of older Americans are already benefitting from a new law passed in 2022 that includes several provisions to help reduce out-of-pocket costs and the high prescription drug prices driving them. One of the most notable and publicized changes is a redesign of the Medicare Part D benefit that caps enrollees’ annual out-of-pocket spending on prescription drugs. Starting in January 2025, enrollee out-of-pocket costs will be limited to $2,000 per year; this amount will be updated annually with the other parts of the Part D benefit. There was previously no limit on how much people in Medicare Part D had to pay for their prescription drugs, and some enrollees faced out-of-pocket costs that exceeded $10,000 per year.

The new Medicare Part D out-of-pocket spending limit, which is expected to help millions of enrollees, has understandably received a lot of attention. However, relatively few people are aware of a related Centers for Medicare & Medicaid Services (CMS) policy change also taking effect next year that could provide additional savings by reducing the amount that Part D enrollees must pay before reaching the out-of-pocket spending cap in 2025.

How the new CMS policy works

Medicare Part D plan sponsors can offer basic plans that align with the standard Part D benefit or enhanced plans that often have higher monthly premiums but offer additional coverage, such as reducing or eliminating the Part D deductible. In 2024, nearly 31 million Part D enrollees were in enhanced plans, representing 55 percent of the total Part D population.

Earlier this year, CMS finalized Part D Redesign Program Instructions saying that, in 2025, Part D plans must count the value of any plan-provided supplemental benefits towards an enrollee’s out-of-pocket costs. In practice, this means that Part D plans must now compare what an enrollee pays in cost-sharing with what they would have paid under the standard Part D benefit and count the larger amount towards their out-of-pocket spending cap.

This policy change has the potential to significantly reduce the amount that some Part D enrollees pay before reaching the new out-of-pocket spending cap. For example, under a defined standard plan, an enrollee taking a drug that costs $1,000 per month would pay the deductible ($590 in 2025) and 25% cost sharing until their out-of-pocket spending reaches $2,000, as shown below.

In contrast, if the same enrollee was in an enhanced Part D plan with no deductible and $50 cost-sharing, they would only have to pay $350 before reaching the $2,000 out-of-pocket spending cap.

This effective reduction in the amount that Part D enrollees must spend before reaching the new out-of-pocket limit will provide additional savings for some enrollees and could also greatly increase the number of people who reach the $2,000 cap in 2025.

The takeaway: Enrollees should carefully review their Part D plan options for 2025

The new Medicare Part D out-of-pocket spending cap will help all Part D enrollees by ensuring they no longer face the possibility of unlimited cost sharing every year. Meanwhile, some Part D enrollees may find that the related Centers for Medicare & Medicaid Services (CMS) policy change will reduce their out-of-pocket costs even further.

For consumers, the collective impact of these changes highlights the importance of looking beyond monthly premiums when choosing a Medicare prescription drug plan. For example, an enhanced Part D plan with a comparatively high premium could ultimately prove less expensive than a basic Part D plan where enrollees have to pay the full $2,000 before reaching the new out-of-pocket cap. In other situations, the newly improved Part D benefit could make it difficult to justify paying a higher premium for an enhanced plan if less expensive basic plans provide comparable coverage.

In combination with typically having dozens of Medicare Part D plans to choose from, this complexity could help explain why many people stay in the same plan year after year. However, the magnitude of the recent changes to the Part D benefit make 2025 an unusually important year for enrollees to take the time to evaluate their plan options and ensure they are in the best plan for their needs.