Medicare is in the middle of its biggest overhaul in years, driven largely by the Inflation Reduction Act. The most impactful change: a hard $2,000 cap on out-of-pocket prescription drug costs, which took effect in 2025. But that’s just one piece. Drug price negotiations, lower insulin costs, new mental health providers, and shifts in how Medicare Advantage plans operate are all reshaping what enrollees pay and what they can access.
The $2,000 Cap on Drug Costs
Before 2025, Medicare Part D had no firm limit on what you could spend out of pocket on prescriptions. People taking expensive medications for cancer, autoimmune conditions, or rare diseases could face bills of $10,000 or more per year. That changed in 2025, when a $2,000 annual cap on out-of-pocket Part D spending took effect.
Once your spending hits $2,000 in a calendar year, you pay nothing more for covered prescriptions for the rest of that year. The cap will rise slightly each year after 2025, indexed to the growth rate of per capita Part D costs, so it won’t stay frozen at $2,000 forever. One important detail: the cap only applies to Part D drugs (the ones you pick up at a pharmacy). It does not cover out-of-pocket costs for drugs administered in a doctor’s office or hospital, which fall under Part B.
The Coverage Gap Is Gone
The so-called “donut hole” was one of the most confusing and frustrating parts of Medicare drug coverage. You’d hit a spending threshold, and suddenly your cost-sharing jumped dramatically until you reached catastrophic coverage. In 2025, that coverage gap phase was formally eliminated.
The new structure is simpler. During the initial coverage phase, you pay 25% coinsurance for prescriptions, while your plan covers the bulk of the remaining cost and drug manufacturers chip in 10% through a new Manufacturer Discount Program. Once you hit the $2,000 out-of-pocket cap, you enter the catastrophic phase, where you pay zero cost-sharing. In that phase, plans cover 60% of drug costs, manufacturers contribute a 20% discount on brand-name drugs, and Medicare picks up the rest.
Medicare Can Now Negotiate Drug Prices
For the first time, Medicare has the authority to directly negotiate prices with pharmaceutical companies. The first round covers 10 high-spending Part D drugs, with negotiated prices taking effect in 2026. These are medications used by millions of enrollees, including blood thinners like apixaban (Eliquis) and rivaroxaban (Xarelto), the diabetes drugs sitagliptin (Januvia) and empagliflozin (Jardiance), and cancer treatments like ibrutinib (Imbruvica) and palbociclib (Ibrance).
The savings vary by drug. Some of these medications already had significant rebates negotiated behind the scenes between manufacturers and insurers. For others, the new law forces much steeper discounts than existed before. The cancer drug Ibrance, for example, had an estimated rebate of just 5.7% before negotiation, while the law now requires at least a 25% discount. Enbrel, used for rheumatoid arthritis, jumps from a roughly 39% rebate to at least 60%. Additional rounds of negotiation will add more drugs in future years.
Insulin Costs Are Capped at $35
If you take insulin, your cost is now capped at $35 for a one-month supply of each covered insulin product, whether it’s covered under Part D (pharmacy prescriptions) or Part B (insulin pumps). You also don’t have to meet your deductible before the cap kicks in. This applies to all Part D enrollees, including those receiving Extra Help (the low-income subsidy program).
Part D Premiums Are Rising Slowly
The Inflation Reduction Act included a provision capping annual increases in the Part D base beneficiary premium at 6% per year through 2029. This prevents the kind of sudden premium spikes that could otherwise result from shifting more drug costs onto plans under the new benefit design. The cap is a ceiling, not a guarantee, so premiums could rise by less than 6% in some years.
Part B Premiums and Deductibles in 2026
Part B, which covers doctor visits, outpatient care, and some medical equipment, has its own costs that change annually. In 2026, the standard Part B monthly premium is $202.90, and the annual deductible is $283. Higher earners pay more. If your individual income exceeds $109,000 (or $218,000 for joint filers), your monthly premium increases on a sliding scale, reaching as high as $689.90 per month for individuals earning $500,000 or more.
Medicare Advantage Prior Authorization Changes
Medicare Advantage plans, the private insurance alternative to Original Medicare, are now required to take a harder look at how they use prior authorization. Prior authorization is the process where your plan must approve a treatment before it’s covered, and it has been a persistent source of delays and denials.
Under the 2025 final rule from CMS, every Medicare Advantage plan’s utilization management committee must now include at least one member with expertise in health equity. These committees must conduct an annual analysis of their prior authorization policies to identify disparities, and they have to publish the results on their website. This doesn’t eliminate prior authorization, but it does create public accountability for how plans use it.
Supplemental Benefit Notifications
Medicare Advantage plans often advertise supplemental benefits like dental, vision, hearing, fitness programs, and meal delivery to attract enrollees. But many people never actually use these benefits, sometimes because they don’t know how to access them. Starting in 2025, plans must send every enrollee a personalized mid-year notice between June 30 and July 31 listing any supplemental benefits they haven’t used yet. The notice must include what the benefit covers, any cost-sharing, and instructions for accessing it.
More Mental Health Providers Accept Medicare
Medicare historically covered psychiatrists, psychologists, and clinical social workers, but excluded two of the largest groups of mental health professionals in the country: licensed marriage and family therapists and licensed mental health counselors. That changed when CMS finalized rules allowing both groups to enroll as Medicare providers and bill the program directly. This opens up access to more than 400,000 additional therapists and counselors, including addiction and substance abuse counselors who meet the mental health counselor requirements. For enrollees who struggled to find a therapist accepting Medicare, this is a significant expansion of options.
Extra Help for Lower-Income Enrollees
The Extra Help program (also called the Low-Income Subsidy) helps cover Part D premiums, deductibles, and copays for people with limited income and savings. The Inflation Reduction Act expanded eligibility so that more people qualify for the full subsidy rather than a partial one. In 2024, you could qualify if your annual income was below $22,590 as an individual or $30,660 as a married couple, with resources (savings, investments, but not your home) below $17,220 individually or $34,360 for couples. These thresholds adjust annually. If you were previously receiving only partial Extra Help, you may now qualify for the full benefit, which means lower premiums and minimal copays at the pharmacy.