Medicare Drug Plans Improve, But Not All Are Created Equal

A Sweeping Redesign of Medicare’s Prescription Drug Benefit

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.”

Annual Enrollment Period Ends December 7

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 and Stand-Alone Drug Plans

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

The new law also 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.

Premium Increases for Some Plans

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.

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.