Inflation Reduction Act 2025: Key CMS Updates & Medicare Part D Changes You Should Know

The Inflation Reduction Act 2025 (IRA) continues to reshape the healthcare and insurance landscape—especially for Medicare beneficiaries. As part of its implementation, the Centers for Medicare & Medicaid Services (CMS) has announced major updates to Medicare Part D that aim to lower prescription costs and simplify plan structures.

Here’s an overview of how the Inflation Reduction Act 2025 affects drug pricing, coverage phases, and out-of-pocket expenses—and what these changes mean for you and your clients.

What Changes Are Coming to Medicare Part D Under the Inflation Reduction Act 2025?

On April 1, 2024, CMS released its final guidance for the Calendar Year (CY) 2025 Part D Redesign Program. The most significant Inflation Reduction Act 2025 updates focus on deductible limits, simplified coverage phases, and new manufacturer discount rules.

Key 2025 Part D changes include:

• Annual Deductible Increase: The Part D deductible rises from $545 to $590. Insurers cannot set a deductible higher than this amount.
• Out-of-Pocket (OOP) Cap: Beneficiaries’ out-of-pocket costs will be capped at $2,000, a major reduction from the previous $8,000 threshold.
• Elimination of the Coverage Gap: The traditional “donut hole” phase will disappear, leaving only three simplified phases—Deductible, Initial Coverage, and Catastrophic.
• No Cost-Sharing in the Catastrophic Phase: Once beneficiaries hit the $2,000 OOP cap, they will pay nothing for covered drugs for the rest of the year.

These reforms reflect a broader CMS strategy to make Medicare Part D phases more transparent and affordable while balancing costs among insurers, drug manufacturers, and the federal government.

How Does the Inflation Reduction Act Affect Drug Prices and Medicare?

The Medicare Inflation Reduction Act 2025 expands CMS’s ability to negotiate drug prices and introduces manufacturer discount programs to reduce out-of-pocket spending.

Here’s how the changes impact prescription drug costs:

• Manufacturer Discount Program: Replaces the old Medicare Coverage Gap Discount Program 2025. Drug manufacturers must now cover 10% of costs during the Initial Coverage phase and 20% during the Catastrophic phase.
• True Out-of-Pocket (TrOOP) Redefined: Payments from certain assistance programs now count toward Medicare TrOOP 2025 totals, while manufacturer discounts no longer do. This adjustment affects how quickly beneficiaries reach the catastrophic phase.
• Monthly Payment Option: A new Medicare Prescription Payment Plan allows beneficiaries to spread out pharmacy costs through capped monthly payments instead of paying the full amount upfront.

These steps are designed to reduce the financial burden of prescription drugs for retirees and those on fixed incomes.

What Is CMS Doing to Implement the New Rules?

To ensure smooth rollout of the Inflation Reduction Act 2025 update, CMS is phasing in its new payment structures and discount programs over several years.

Implementation highlights:

• The Manufacturer Discount Program will run from 2025 to 2030, gradually shifting more cost responsibility to drugmakers.
• Part D insurers will shoulder additional costs during the early years to maintain stability in the market.
• Modified TrOOP Categories: CMS revised which payments count toward TrOOP to reflect modern benefit designs and ensure consistency across Medicare Advantage and standalone Part D plans.
• CMS will continue to issue updated technical guidance for carriers to align plan pricing and benefit designs with these new federal requirements.

For insurers and benefits administrators, these updates require restructured systems to manage reporting, accounting, and beneficiary communications accurately.

How Will Medicare Beneficiaries Be Impacted?

For most enrollees, Medicare Part D under the Inflation Reduction Act 2025 means lower out-of-pocket costs and simpler coverage. However, some plan sponsors anticipate slightly higher premiums as cost-sharing structures evolve.

The key takeaways for beneficiaries:

• Annual drug spending will drop significantly due to the $2,000 OOP cap.
• The elimination of the coverage gap simplifies cost tracking and claim transparency.
• Low-income subsidy recipients will continue to receive enhanced benefits under revised cost-sharing rules.
• Monthly payment options make managing medication expenses easier.

While the new structure is designed to reduce drug costs, beneficiaries may notice plan adjustments as insurers balance the distribution of liability between CMS, carriers, and manufacturers.

Staying Informed About Medicare and the Inflation Reduction Act 2025

The ongoing implementation of the Medicare Inflation Reduction Act 2025 reflects a fundamental shift in how the government manages drug pricing, plan structures, and consumer protections.

For brokers, HR professionals, and benefits advisors, staying up to date on CMS guidance is critical to helping clients navigate upcoming plan renewals and coverage changes.

(Sources: Centers for Medicare & Medicaid Services – 2025 Part D Redesign Program Instructions; Kaiser Family Foundation – Medicare Part D Overview; AARP – What You Need to Know About Medicare Part D Changes in 2025; National Council on Aging – IRA Updates.)