Choices: Medicare's drug plans and the separate Medicare Advantage plans are adjusting premiums, deductibles and may even change which drugs they cover.
When Pam McClure learned she'd save nearly $4,000 on her prescription drugs next year, she says, "it sounded too good to be true." She and her husband are retired and live on a "very strict" budget in central North Dakota.
By the end of this year, she will have spent almost $6,000 for her medications, including a drug to control her diabetes.
McClure, 70, is one of about 3.2 million people with Medicare prescription drug insurance whose out-of-pocket medication costs will be capped at $2,000 in 2025 because of the Biden administration's 2022 Inflation Reduction Act, according to an Avalere/AARP study.
"It's wonderful -- oh my gosh. We would actually be able to live," McClure says. "I might be able to afford fresh fruit in the wintertime."
The Inflation Reduction Act, a climate and health care law, radically redesigned Medicare's drug benefit, called Part D, which serves about 53 million people 65 and older or with disabilities. The administration estimates that about 18.7 million people will save about $7.4 billion next year due to the cap on out-of-pocket spending and less publicized changes.
The annual enrollment period for Medicare beneficiaries to renew or switch drug coverage or to choose a Medicare Advantage plan ends Dec. 7.
Medicare Advantage is the commercial alternative to traditional government-run Medicare and covers medical care and often prescription drugs. Medicare's stand-alone drug plans, which cover medicines typically taken at home, are also administered by private insurance companies.
"We always encourage beneficiaries to really look at the plans and choose the best option for them," says Chiquita Brooks-LaSure, who heads the Centers for Medicare & Medicaid Services. "And this year in particular it's important to do that because the benefit has changed so much."
Improvements to Medicare drug coverage required by the new law are the most sweeping changes since Congress added the benefit in 2003, but most voters don't know about them, KFF surveys have found. And some beneficiaries may be surprised by a downside: premium increases for some plans.
CMS says that nationwide the average Medicare drug plan premium will fall about $1.63 a month -- about 4%. "People enrolled in a Medicare Part D plan will continue to see stable premiums and will have ample choices of affordable Part D plans," the agency says.
However, an analysis by KFF, a health information nonprofit that includes KFF Health News, found that "many insurers are increasing premiums" and that large insurers including UnitedHealthcare and Aetna also reduced the number of plans they offer.
Many Part D insurers' initial 2025 premium proposals were even higher. To cushion the price shock, the Biden administration created what it calls a demonstration program to pay insurers $15 extra a month per beneficiary if they agreed to limit premium increases to no more than $35.
"In the absence of this demonstration, premium increases would certainly have been larger," Juliette Cubanski, deputy director of the Program on Medicare Policy at KFF, wrote in an Oct. 3 analysis.
Nearly every Part D insurer agreed to the arrangement. In California, for example, Wellcare's popular Value Script plan went from 40 cents a month to $17.40. The Value Script plan in New York went from $3.70 a month to $38.70, a more than tenfold hike -- and precisely a $35 increase.
Premiums went up 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, KFF Health News found.
In addition to the $2,000 drug spending limit, the Inflation Reduction Act caps Medicare copayments for most insulin products at no more than $35 a month and allows Medicare to negotiate prices of some of the most expensive drugs directly with pharmaceutical companies.
It will also eliminate one of the drug benefit's most frustrating features, a gap known as the "donut hole," which suspends coverage just as people face growing drug costs, forcing them to pay the plan's full price for drugs out-of-pocket until they reach a spending threshold that changes from year to year.
The law also expands eligibility for "extra help" subsidies for about 17 million low-income people in Medicare drug plans and increases the amount of the subsidy. Drug companies will be required to chip in to help pay for it.
Starting Jan. 1, the redesigned drug benefit will operate more like other private insurance policies. Coverage begins after patients pay a deductible, which will be no more than $590 next year. Some plans offer a smaller or no deductible, or exclude certain drugs, usually inexpensive generics, from the deductible.
After beneficiaries spend $2,000 on deductibles and copayments, the rest of their Part D drugs are free.
That's because the new law raises the share of the bill picked up by insurers and pharmaceutical companies. The law also attempts to tamp down future drug price hikes by limiting increases to the consumer price inflation rate, which was 3.4% in 2023. If prices rise faster than inflation, drugmakers have to pay Medicare the difference.
"Before the redesign, Part D incentivized drug price increases," says Gina Upchurch, pharmacist and executive director of Senior PharmAssist, a Durham, North Carolina, nonprofit that counsels Medicare beneficiaries. "The way it is designed now places more financial obligations on the plans and manufacturers, pressuring them to help control prices."
Another provision of the law allows beneficiaries to pay for drugs on an installment plan, instead of having to pay a hefty bill over a short period of time. Insurers are supposed to do the math and send policyholders a monthly bill, which will be adjusted if drugs are added or dropped.