How Does Medicare Advantage Adjust for Inflation

Updated as of 2025.

If you’re approaching 65 and getting ready to enroll in Medicare, you’ve likely felt the impact of inflation over the past few years. Since 2020, we’ve seen inflation climb at a rapid pace, affecting everything from groceries to gas—and healthcare is no exception. As someone preparing to live on a potentially fixed income, you’re probably wondering how rising costs will affect your Medicare coverage.

Healthcare inflation affects retirees differently than working-age Americans, especially when it comes to prescription drugs, medical supplies and medical devices. Supply chain problems have led to higher costs and shortages in some communities. More Americans are reaching Medicare age each year with one in five Americans to be 65 or older by 2030. Texas has had the largest growth, with the senior population expected to rise from 14.5% to 16.3% between 2025 and 2030. This increases demand for healthcare services.

Here’s the good news: While the economy will always impact your life, Medicare and insurers are working hard to help. They’re trying to bridge the gap between your potentially fixed income and rising medical expenses. Medicare has built-in adjustments for inflation. It also has powerful new protections designed to keep your out-of-pocket costs manageable.

Medicare Cost Changes in 2025

Like most things, Medicare costs do increase each year to keep pace with inflation and rising healthcare expenses. Here’s how the standard Medicare costs changed for 2025:

Part B (Doctor Visits & Outpatient Services)

• Monthly Premium: Increased from $174.70 to $185 (+$10.30)
• Annual Deductible: Increased from $240 to $257 (+$17)

Part A (Hospital Coverage)

• Hospital Deductible: Increased from $1,632 to $1,676 per stay (+$44)
• Daily Coinsurance (for longer stays): Now $419/day for days 61-90

But it’s not all cost increases. The 2025 Social Security cost-of-living adjustment is 2.5%. This more than covers the Medicare Part B premium increase for most people.

How Medicare Advantage Plans Handle These Changes

Medicare Advantage plans often provide more predictable costs than Original Medicare. While they must cover everything Original Medicare covers, many MA plans offer fixed copays, instead of percentage-based costs, annual out-of-pocket maximums—capped at $9,350 for 2025—and $0 premium options that only require you pay the standard Part B amount.

The Inflation Reduction Act: What Started in 2025

Thanks to the Inflation Reduction Act (IRA), 2025 marks the beginning of the most significant Medicare cost protections in decades. Here’s what’s already helping people with Medicare save money:

1. $2,000 Annual Cap on Drug Costs

This is the big one. For the first time ever, if you have Medicare Part D drug coverage, your out-of-pocket costs are capped at $2,000 per year. Once you hit that limit, you pay nothing more for covered medications for the rest of the year. If you take expensive medications, this could save you thousands. Previously, there was no limit to what you could pay.

2. Monthly Payment Plans for Prescriptions

Instead of facing a large bill at the pharmacy counter, you can now spread your prescription costs across the year with predictable monthly payments. This helps avoid those “sticker shock” moments when picking up expensive medications.

3. Lower Costs for Certain Doctor-Administered Drugs

According to CMS, for certain doctor-administered drugs (Part B) with prices that have increased faster than the rate of inflation, your coinsurance is 20% of the inflation-adjusted price instead of the higher actual price.

4. Elimination of the “Donut Hole”

The confusing coverage gap in drug coverage is gone. Your cost-sharing is now more predictable throughout the year.

How the Medicare Inflation Rebate Program Protects You

Behind the scenes, the Medicare Inflation Rebate Program (MIRP) is working to discourage excessive price increases by making them financially painful for drug companies. This is largely done by applying penalties to them when they raise their prices faster than inflation. The penalties they must pay are rebates to Medicare, creating a strong incentive for companies to keep price increases within the bounds of inflation.

Per CMS, some Medicare enrollees have paid less for certain drugs available through Medicare Part B. Under the IRA, during Q1 of 2025 Medicare reduced the coinsurance on certain drugs whose prices increased faster than inflation, resulting in savings of $1 to $10,000+ per day for some people with Medicare.

MIRP helps control price-gouging, but it doesn’t address real cost increases from supply chain problems or manufacturing challenges. These issues affect the entire healthcare system, beyond just medication and medical device costs. It can even have an impact on at-home nursing prices.

Inflation Reduction Act Savings: 2026 and Beyond

New features from the Inflation Reduction Act are rolled out each year, putting money back in your wallet. Medicare began negotiations on drug prices back in 2024, but in 2026, you’ll finally see the effects of it at your local pharmacy.

The First 10 Negotiated Medications

The first 10 negotiated drugs covered under Medicare Part D will have new, lower prices in 2026, with savings of 38% to 79% off current list prices.

• Eliquis (blood thinner)
• Jardiance (diabetes, heart failure and chronic kidney disease)
• Xarelto (blood thinner)
• Januvia (diabetes)
• Farxiga (diabetes, heart failure and chronic kidney disease)
• Entresto (heart failure)
• Enbrel (rheumatoid arthritis, psoriasis and psoriatic arthritis)
• Imbruvica (blood cancers)
• Stelara (psoriasis, psoriatic arthritis, Crohn’s disease and ulcerative colitis)
• Fiasp/NovoLog (diabetes)

More Negotiated Prices in 2027

An additional 15 drugs will have negotiated prices in 2027 under Medicare Part D, including popular medications like Ozempic and Wegovy.

Making the Most of These Benefits

If You’re Considering Medicare Advantage

Medicare Advantage plans can provide more predictable healthcare costs, even during uncertain economic times because these plans are offered by private insurers. They can often provide more stable pricing structures regardless of market changes. Many Medicare Advantage plans offer:

• Even lower out-of-pocket caps than the $2,000 Medicare requires
• Fixed copays that provide more predictable costs than Original Medicare’s percentage-based costs
• Integrated drug coverage (that means one plan handles all your Medicare benefits)
• Additional benefits like dental, vision and wellness programs not covered by Original Medicare

If You Prefer Original Medicare

You’ll still get all these new protections, but you’ll need to:

• Enroll in a separate Medicare Part D plan for drug coverage
• Consider a Medicare Supplement plan to help with other out-of-pocket costs
• Stay informed about which drugs have reduced costs due to inflation rebates

While Medicare premiums and deductibles do increase each year with inflation, the new protections starting in 2025 represent the most significant cost relief for people with Medicare in generations. According to KFF, the $2,000 drug cap alone will help millions of Part D enrollees over time.

As you approach Medicare eligibility, these changes mean you can enroll with confidence. Your healthcare costs now have meaningful protections that didn’t exist before. Capped out-of-pocket costs, negotiated drug prices and inflation penalties for excessive price increases work together to create a safety net that will help keep your Medicare costs manageable.