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Creating a Balanced Retirement Income Plan
Explore strategies for building a retirement income plan—covering taxes, timing, liquidity, and legacy—designed for high-net-worth households.
EP Wealth advisors share important Medicare updates for 2025 to help you adjust your retirement strategy and manage medical care costs in the year ahead. Find an advisor near you.
5 Medicare Changes in 2025: How They Can Impact Your Financial Planning
Healthcare can be one of the most significant expenses you face in retirement. And if you’re not prepared, rising costs can affect your savings plan. Here, EP Wealth advisors share 2025 Medicare policy updates to help you plan ahead and adjust your retirement planning strategy if needed.
1. Premium and Deductible Increases for Parts A and B
The Centers for Medicare & Medicaid Services announced Part A and Part B premiums, deductibles, and coinsurance amounts for 2025 in November 2024. Costs have increased slightly, in part due to projected price changes and utilization increases.
Part A covers inpatient and home health services, including inpatient rehabilitation and hospice. The deductible for hospital admission will increase by 2.7 percent to $1,676 in 2025. This covers 60 days of inpatient care before coinsurance is due.
Part B covers physicians’ services, outpatient hospital services, certain home health services, durable medical equipment, and certain other medical and health services not covered by Medicare Part A. For Medicare B beneficiaries, the standard monthly premium will start at $185 in 2025, up $10.30 from 2024. The annual deductible for Part B will be $257, up $17 from 2024.
2. Part B Monthly Adjustments for High-Income Beneficiaries
In 2025, high-income Medicare beneficiaries with modified adjusted gross income over $106,000 for individuals and $212,000 for beneficiaries who file joint tax returns will pay more for monthly premiums. With the new income-related monthly adjustments, high-income beneficiaries can expect to pay anywhere from $259 to $628 each month for full Part B coverage.
3.$2,000 Out-of-Pocket Spending Cap for Prescriptions
Next year will be the first time in Medicare’s history that beneficiaries will have a cap on how much they spend on prescription drugs. This cap applies to copayments and coinsurance on covered drugs and deductibles.
Part D plans have a deductible of up to $590. Then, you pay out-of-pocket costs, including medications, up to $2,000. Once you have paid the $2,000 out-of-pocket during the calendar year, you automatically receive “catastrophic coverage” and won’t have to pay for drugs covered by Part D for the remainder of the year.
The cap does not apply to premiums and drugs the plan does not cover, including certain chemotherapy drugs and some self-administered drugs. You can check the Medicare website or contact your state insurance program or healthcare provider to determine if your medication is covered.
4. No More ‘Donut Hole’ Coverage Gap
The new $2,000 out-of-pocket cap eliminates the coverage gap in Medicare Part D, often referred to as the “donut hole.” Previously, Medicare Part D had a four-phase structure: a deductible phase, initial coverage, the donut hole, and catastrophic coverage.
Before 2025, beneficiaries entered the donut hole after their total drug costs reached $5,030. During this phase, they paid a larger share of their medication costs—often at higher prices than during the initial coverage phase. Catastrophic coverage began once total drug costs hit $8,000, significantly reducing beneficiaries’ out-of-pocket expenses.
With the $2,000 cap, beneficiaries will no longer experience the financial burden of the donut hole. Instead, once their out-of-pocket costs reach $2,000, catastrophic coverage will automatically begin, saving millions of Americans on medication costs. In 2024, more than 1.5 million beneficiaries hit $2,000 in out-of-pocket expenses by April 1 alone.
5. Medicare Prescription Payment Plan
In 2025, Medicare will introduce a monthly payment plan allowing beneficiaries to spread prescription drug costs across the calendar year. If you choose to participate, you will continue paying your plan premium, if you have one, and you will receive a bill from your health or drug plan to pay for medications (instead of paying the pharmacy). This option won’t save the costs of your medications, but it will provide a predictable retirement budget and may potentially make drug costs more manageable.
Accounting for healthcare costs is an essential part of comprehensive retirement planning. The start of a new year is the perfect time to review your plan, make necessary adjustments, and stay flexible and prepared to adapt to changes ahead. Contact EP Wealth to find an advisor near you who can help you take control of your retirement planning.
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