Payers Prepare for 2025 Medicare Part D Changes
As of 2024, more than 54 million Medicare beneficiaries had prescription drug coverage through Medicare Part D. Of that total, 31 million had Part D coverage alongside a Medicare Advantage plan, and about 23 million had a Part D prescription drug plan.
As a result of the Inflation Reduction Act (IRA), significant changes to the Part D benefit will take effect in 2025. Changes include a reduced out-of-pocket maximum, elimination of the coverage gap, continued drug price negotiations for selected therapies, and a new Medicare Prescription Payment Plan. While these changes will offer millions of Medicare beneficiaries increased access and coverage protection, they may also cause payers to increase utilization management restrictions within their commercial plans due to losses incurred by the IRA.
In December 2024, the MMIT Index team conducted a Rapid Event Primer to gather insights into the expected changes across payers’ Medicare Part D, Medicare Part B, and commercial pharmacy and medical benefits books of business. Let’s review how payers plan to respond to the 2025 IRA-based Part D changes.
Elimination of the “Donut Hole”
Most Medicare beneficiaries taking prescription medication have dealt with the term “donut hole.” This term refers to the coverage gap in which a temporary limit is placed on what the Part D plan will pay for. In 2024, an enrollee in the initial coverage stage paid the full cost of a drug until meeting their deductible of up to $545. At that point, the enrollee began paying the 25% coinsurance for their prescription, with Medicare paying the remainder.
When the total drug costs paid reached $5,030, the enrollee entered the donut hole: they were responsible for 100% of the drug cost until their cumulative out-of-pocket costs reached $8,000. At this point, known as the catastrophic coverage stage, Medicare paid the full cost of the prescription. This coverage gap resulted in higher rates of prescription abandonment, as beneficiaries were suddenly asked to pay much more for the same medications.
In 2025, the coverage gap is eliminated. Once Part D beneficiaries reach their deductible, now up to $590, they will make 25% copayments for their medications until their out-of-pocket costs reach $2,000. At that point, enrollees will automatically enter the catastrophic coverage stage and will not have to pay for covered Part D drugs for the rest of the coverage year.
Impact of the $2K Out-of-Pocket Maximum
This reduction of beneficiaries’ out-of-pocket maximum from $8,000 to $2,000 is a significant change, which is expected to affect the other costs and coverage of Part D and Medicare Advantage plans—although payers are not in agreement about how. According to the MMIT Index Rapid Event Primer, almost one-third (30%) of respondents believe these changes will increase the utilization of high-cost agents, while 20% expect the changes will reduce their utilization.
Regardless, payers plan on focusing on cost containment and the promotion of evidence-based therapies to offset any losses incurred from the IRA changes. The majority (70%) plan to increase their prioritization of biosimilar-forward formularies, and half of responding payers plan to prioritize generic-forward formularies. Most (60%) payers plan to increase their use of prior authorizations, and many (45%) plan to increase the use of both step edits and product exclusions. Half of responding payers expect plan premiums to increase.
As one Chief Medical Officer said, “[We are] eliminating plans that may not be profitable with new rules of Part D redesign, limiting formulary, increasing PA and steps to encourage the use of preferred drugs.” According to one pharmacy director from a large national plan, “reacting to the liability from the IRA” is a top priority for their management in the coming year.
These findings suggest that Medicare members could be subject to more restrictive coverage along with higher premiums and copayments this year. Potential increases in the utilization of high-cost brand drugs in Medicare could also guide commercial formulary management, impacting prior authorizations, step therapies, and copays.
Continued Drug Price Negotiations
In 2025, Medicare will continue negotiating directly with drug manufacturers to improve access and reduce spending on high-cost branded Part D drugs. The negotiated prices for the first ten drugs selected for the Medicare Drug Price Negotiation program in August 2024 will take effect in January 2026. CMS reports that about 9 million people with Medicare use at least one of these drugs, and expects an aggregated savings of $1.5 billion in personal out-of-pocket costs in 2026.
The second cycle of negotiations, which were announced in January 2025, will take effect in 2027. Even before the list was announced, many payers reported that they were proactively negotiating value-based contracts with manufacturers. Payers are in discussions regarding supplemental rebates, the utilization of value-based frameworks, and how to leverage comprehensive data analysis. They are leaning into strategic partnerships to secure optimal pricing while maintaining the sustainability of the Medicare program.
Although negotiated prices will not impact 2025, payers, manufacturers, and seniors will see a decrease in Medicare drug prices in 2026. Many payers are concerned about the downstream effects of the program. Payers suspect negotiated Medicare prices may be used as a reference point in commercial pricing discussions, leading to increased pressure for competitive commercial pricing. At least four respondents emphasized their concern about manufacturers shifting costs to commercial plans to offset revenue losses.
M3P for Beneficiaries
Beginning in 2025, the Medicare Prescription Payment Plan (M3P) will offer the option for enrollees to pay out-of-pocket prescription drug costs through capped monthly installment payments. This plan will alleviate high cost-sharing for Part D beneficiaries earlier in the plan year by spreading those expenses throughout the year. A recent FiercePharma article indicates that M3P will allow patients taking high-cost specialty drugs to exert greater control over when they pay for their prescriptions.
In conclusion, a redesign of Medicare Part D will significantly impact pharma, payers, and patients. With a revamped Part D plan, payers are trying to accurately anticipate trends in utilization for high-cost branded drugs, generics, and biosimilars, along with how these trends will impact their commercial book of business.
Ongoing changes to Medicare Part D may be an opportunity for payers to reevaluate formularies and utilization management tactics across all therapeutic areas. Payers may find that Medicare utilization rates require them to make significant adjustments to their partnerships, patient assistance, and commercial programs.
To track payer and HCP perspectives on current trends, learn more about our Oncology Index and Biologics & Injectables Index solutions.
