2025 Medicare Part D Redesign Updates

CMS continues to implement and adjust to the Inflation Reduction Act’s provisions, which aim to make prescriptions drugs more affordable to consumers, and their effects on the Part D market.

Review the most important 2025 Medicare Part D changes for your clients!

2025 Part D Redesign Changes

On April 1, 2024, the Centers for Medicare & Medicaid Services (CMS) released the Final Calendar Year (CY) 2025 Part D Redesign Program Instructions, detailing CMS updates for Part D. What’s changing?

With a simplified structure, the CMS and IRA Part D redesign program updates fall into three main categories: updated beneficiary costs, restructured phases and liability (i.e., who pays and when), and modified TrOOP categories. How much Medicare Part D will cost in 2025?

Beneficiary 2025 Part D Cost Updates

These Medicare changes demonstrate CMS’ continued implementation of the IRA, which eliminated the five percent coinsurance in the catastrophic phase in 2024.

Part D Annual Deductible Changes

The annual deductible will rise from $545 to $590 — a $45 increase — in 2025. This means that Part D sponsors can’t set a deductible above $590. They may choose to have a lower deductible or even none at all. Part D beneficiaries must pay 100 percent of their gross covered prescription drug costs until the deductible is met (if there is one).

Lower OOP Threshold

Beginning in 2025, CMS will cap the Part D enrollee’s out-of-pocket (OOP) threshold at $2,000, which means your client won’t need to pay as much before entering the catastrophic coverage phase.

The Part D OOP threshold is currently $8,000; however, this total includes certain payments made on beneficiaries’ behalf. (For example, it includes almost the full cost of brand-name drugs, including the manufacturer’s discount.) KFF reported Part D enrollees taking only brand-name drugs will spend roughly $3,300 of their own money before reaching catastrophic coverage this year, so your clients could see savings of about $1,300 in 2025.

Restructured Part D Phases & Liabilities

In 2024, the Part D benefit consists of four phases — annual deductible, initial coverage, coverage gap, and catastrophic coverage. CMS will eliminate the coverage gap phase in 2025, further ensuring the end of the donut hole era.

In this new, simplified structure, there are three phases, only two of which your client will spend money in.

• Annual deductible:
  • The enrollee pays 100 percent of drug costs.
  • Once the enrollee meets the deductible (if applicable), they’ll enter the next phase.
• Initial coverage:
  • The enrollee pays 25 percent coinsurance for covered Part D drugs.
  • The insurance carrier typically pays 65 percent of the cost of applicable drugs and 75 percent of the cost of all other covered Part D drugs.
  • Through the Manufacturer Discount Program, the drug manufacturer typically covers 10 percent of the cost of applicable drugs.
  • Once the enrollee has reached the annual OOP threshold of $2,000, they’ll move into the next phase.
• Catastrophic:
  • The enrollee pays no cost-sharing for covered Part D drugs.
  • The insurance carrier typically pays 60 percent of the costs of all covered Part D drugs.
  • Through the Manufacturer Discount Program, the drug manufacturer typically covers 20 percent of the cost of applicable drugs.
  • CMS pays a reinsurance subsidy equal to 20 percent of the costs of applicable drugs and equivalent to 40 percent of the costs of all other covered Part D drugs that are not applicable drugs.

Here’s a visual representation of how the cost breakdown will change in 2025:

Source: KFF

CMS is phasing in the Manufacturer Discount Program for certain drugs of qualifying drug manufacturers over the next several years. The phase-in for the initial coverage phase will occur from 2025 through 2028 and that of the catastrophic phase will occur from 2025 through 2030. For any drug subject to the phase-in, Part D sponsors must pay the additional cost that would have otherwise been covered by the manufacturer discount.

Modified Medicare Part D TrOOP Categories

The IRA also updated what counts toward the True Out-of-Pocket Cost (TrOOP) for CY2025. TrOOP includes costs the beneficiary pays out of pocket for their prescriptions (e.g., their deductible, copayments, and coinsurance) along with select other payments made on a beneficiary’s behalf (e.g., State Pharmaceutical Assistance Program payments, AIDS Drug Assistance Programs). Premium payments do not count toward TrOOP.

For 2025, you’ll see these TrOOP changes:

• Now Included: Payments for previously excluded supplemental benefits provided by Part D sponsors and Employer Group Waiver Plans (EGWPs)
• Now Excluded: Payments under the new Manufacturer Discount Program

Currently, payments under the Medicare Coverage Gap Discount Program count toward TrOOP. That program is being replaced by the Manufacturer Discount program.

Since TrOOP determines when your client enters the initial coverage phase, qualifies for the Manufacturer Discount Program, reaches the annual OOP threshold, and enters the catastrophic coverage phase, these changes could affect the speed with which your client moves through coverage phases.

Medicare Prescription Payment Plan

Although your clients’ OOP costs will be lower, they’ll still owe up to $2,000 out of pocket. Starting in 2025, Part D enrollees will have the ability to manage these costs in the form of capped monthly payments. The Medicare Prescription Payment Plan means your clients won’t have to pay upfront and in full at the pharmacy for their covered drugs.

Manufacturer Discount Program

For 2025, CMS will also sunset the Medicare Part D Coverage Gap Discount Program (CGDP) and establish the Manufacturer Discount Program (Discount Program) — a necessary move due to elimination of the coverage gap phase.

Essentially, the IRA reorganized liability between the manufacturer and Part D sponsors and shifted more liability to the manufacturer and away from Medicare in the catastrophic phase. Manufacturers will now cover 10 percent for all applicable drugs in the initial coverage phase and 20 percent of all applicable drugs in the catastrophic phase. Certain specified and small manufacturers will follow a discount phase-in period over the next five years.

Here’s how the Discount Program will work with the deductible:

• If a beneficiary doesn’t satisfy their plan’s deductible but meets TrOOP to satisfy the defined standard deductible:
  • They will still be an applicable beneficiary under the Discount Program and deemed to have satisfied their plan deductible.
• If the beneficiary does satisfy the plan’s deductible or utilizes a drug not subject to the deductible but is not eligible for the Discount Program because they have not incurred sufficient TrOOP-eligible costs to satisfy the defined standard deductible amount:
  • The Part D sponsor will be required to cover the portion of costs a manufacturer would have owed had Discount Program discounts begun.
  • Your clients won’t owe more than their deductible and 25 percent coinsurance in the initial coverage phase. Instead, their plan will cover any remaining portions.

Unlike under the Coverage Gap Discount Program, manufacturer discounts under the new program are available regardless of whether the Part D enrollee is entitled to a low-income subsidy, and discounts do not count toward the enrollee’s incurred costs. The applicable discount is not available until the enrollee has incurred costs exceeding the annual deductible, regardless of whether the enrollee pays the deductible through assistance.

For all the details, see CMS’ Manufacturer Discount Program Final Guidance.

Part D Creditable Coverage Determinations

CMS is revising the definition of creditable coverage to exclude discounts paid under the Manufacturer Discount Program when determining the actuarial value of the standard Part D benefit and a plan sponsor’s plan. This value should be based on the amount the plan pays and includes the federal reinsurance subsidy in the catastrophic phase.

Additionally, while draft guidance suggested the simplified determination methodology would no longer be available for 2025, CMS is continuing to allow plans to use it for CY2025. They’re evaluating continuing or revising the simplified determination methodology for CY2026 and beyond.

In general, these changes will put a burden on group health plans to balance benefit enhancements with affordability.

In general, these changes will put a burden on group health plans to balance benefit enhancements with affordability. Clients may need help navigating coverage to avoid a late enrollment penalty.

Learn more about the Part D creditable coverage determination changes and their impact

Part D Premium Stabilization Demonstration Program

On July 29, 2024, while announcing preliminary 2025 Medicare Part D bid information, CMS simultaneously announced the creation of a new premium stabilization program to help subsidize the cost of Part D for prescription drug plans as IRA changes take effect.

Plan participation in this new program should lead to smaller increases in PDP premiums for 2025 than would happen otherwise.

Learn more about the Part D premium stabilization program

The Future of Part D

As Part D continues to evolve, we’ll all need to evolve along with it. With the IRA changes in mind, we previously projected major PDP premium increases and disruption in the Medicare Part D space during the 2025 Annual Enrollment Period. We now expect plan participation in the new CMS premium stabilization program for Part D to ultimately keep PDP premiums in a more affordable range for beneficiaries this AEP.

We’ll keep you updated on important Part D changes.

Prescription drug plans are still an important component to your portfolio, especially if you sell Medicare Supplements. Download our free guide to learn more about selling Part D.

While there are other changes coming for Part D in 2025, these are the highlights most relevant to you and your clients. If you’re interested in learning more about other updates concerning reinsurance methodology and amounts, EA benefit design, and more, check out CMS’ Final CY 2025 Part D Redesign Program Instructions Fact Sheet.