Important Medicare Changes for 2025 and 2026
Every year our government changes Medicare through legislation like the Inflation Reduction Act or by administrative dictates from the Centers for Medicare & Medicaid Services (CMS).
In both 2025 and 2026 there are major changes to Medicare Part D and the Rx cost smoothing provision which is akin to “balance billing” on your utility bills.
2025 marks a significant year for Medicare Part D beneficiaries, with the implementation of key provisions from the Inflation Reduction Act of 2022 (IRA) aimed at lowering prescription drug costs and improving accessibility. The changes impact how beneficiaries pay for their medications, with two major provisions: an annual out-of-pocket (OOP) cap and a voluntary cost-smoothing program.
- Annual out-of-pocket spending cap
A new $2,000 annual cap on out-of-pocket prescription drug spending took effect in 2025. This means that once beneficiaries spend $2,000 out-of-pocket (OOP) on covered Part D medications within a calendar year, they will pay nothing for covered drugs at a covered pharmacy for the remainder of that year. This measure replaces the previous coverage gap phase, also known as the “donut hole”, and provides substantial relief to individuals with high prescription drug costs. In 2026, the Part D cap will be $2,100, according to the Centers for Medicare & Medicaid Services (CMS).
- Medicare Prescription Payment Plan (smoothing)
Alongside the OOP cap, Medicare beneficiaries now have the option to participate in the Medicare Prescription Payment Plan (MPPP or M3P), also referred to as “smoothing”. This voluntary program allows individuals to spread their Part D OOP costs throughout the year by paying them in capped monthly installments instead of upfront.
Here’s how smoothing works:
- Voluntary participation: Beneficiaries must opt into the program through their Part D plan or Medicare Advantage plan that includes prescription drug coverage. They may also opt-out at any time.
- No upfront payments: Once enrolled, participants will pay $0 at the In-network pharmacy for their covered Part D drugs.
- Monthly billing: Part D plans will pay the pharmacy and then bill enrollees monthly for their incurred OOP cost-sharing amount, capped based on a calculated maximum monthly cap.
- Calculation of monthly payments: The maximum monthly cap is determined by subtracting the beneficiary’s total OOP spending to date from the annual OOP maximum ($2,000 in 2025, $2,100 in 2026) and dividing by the remaining months in the plan year. ($2000/12 = $167.70/month.)
- Nonpayment: Beneficiaries who fail to pay their monthly bill will be given a grace period before being terminated from the program for the remainder of the plan year.
Impact and considerations
- Benefits for beneficiaries: These changes, particularly the OOP cap, are expected to significantly reduce financial burdens for beneficiaries with high prescription drug costs, especially those not eligible for Extra Help or Low-Income Subsidy (LIS) programs.
- Increased adherence: The reduced financial pressure may lead to increased adherence to necessary medications, especially for expensive drugs, according to Sidley Austin LLP.
- Plan design adjustments: Part D plans have been adjusting their deductibles and cost-sharing structures in response to the changes, according to USC Schaeffer.
- Importance of education: CMS is working to educate beneficiaries about the MPPP, as participation is voluntary and requires active enrollment.
- This helps families or professional service providers such as Daily Money Managers to properly manage a senior’s Rx costs annually with ease.
- Remember that a senior MUST use drugs on their plan’s formulary at a covered in-network pharmacy for their drug costs to be covered by these provisions. Out of network spending is not considered covered costs.
Looking ahead
These reforms represent a fundamental shift in Medicare Part D, aiming to make prescription drugs more affordable and accessible for beneficiaries. It’s crucial for beneficiaries to understand these changes and explore whether the new cost-smoothing option aligns with their individual needs to optimize their prescription drug coverage.
Disclaimer: This information is for educational purposes only. Please consult with a qualified professional for personalized guidance regarding Medicare Part D and prescription drug coverage options. Or call 800-MEDICARE or visit www.Medicare.gov for generalized guidance.
Keith Nabb is Founder and Lead Educator at Affordable Medicare Solutions, a Medicare Insurance Agency licensed in 36 states. Contact Keith at info@AMSPlans.com.
