Ep. 272 – Medicare Part D Overhaul in Retirement- Key Changes in Prescription Drug Coverage
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In this episode of the Secure Your Retirement Podcast, Radon and Murs discuss the upcoming changes to Medicare Part D in 2025, bringing on their in-house healthcare specialist, Shawn Southard. The discussion highlights significant updates to prescription drug coverage that will impact beneficiaries, especially concerning cost reductions and structural changes due to the Inflation Reduction Act of 2022.
Listen in to learn about the details of these changes, including the lowering of out-of-pocket maximums and the elimination of the infamous “donut hole” coverage gap. The conversation also touches on the broader implications for Medicare beneficiaries, such as potential increases in plan premiums and the necessity for careful review of one’s Medicare coverage in light of these changes.
In this episode, find out:
- Key changes to Medicare Part D starting in 2025.
- The impact of the Inflation Reduction Act on Medicare beneficiaries.
- The reduction of out-of-pocket maximums for prescription drugs.
- The elimination of the Medicare “donut hole.”
- Strategies for navigating these changes and optimizing Medicare coverage.
Tweetable Quotes:
- “Potentially, the most that people are going to have to pay now in Medicare prescription drug plans is $2,000 out of pocket.” – Shawn Southard
- “This is the year you need to take a hard stop and review your Medicare situation.” – Shawn Southard
Resources:
If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!
To access the course, simply visit POMWealth.net/podcast.
Here’s the full transript:
Radon Stancil:
Welcome to Secure Your Retirement podcast. Today is a whopper, and for whoppers, we’d like to bring on a guest, Murs, and I don’t like to handle those by herself. So we brought on our own in-house healthcare specialist that works really a lot with Medicare, Shawn Southard. So, Shawn, thank you for coming on and chatting with us today.
Shawn Southard:
Yeah, thanks for having me.
Radon Stancil:
So the real topic of what we wanted to go over with you, Shawn, is, we know that there’s some big time changes that could affect people, and I guess I’m not going to say negatively, but really kind of in a couple different ways when it comes to the prescription drug plans in connection with Medicare. So we’re going to want to ask you to kind of give us some baseline on that. But before we do, I want to explain to the listeners this. If you’re listening to this and you are driving, walking, or anything like that, that’s okay. You can listen to all of this, but if you want to see some of the visuals that Shawn is going to be referencing, you can do it in one of two ways.
If you want to hear it just like we’ve got it here on the podcast, you can basically go to Spotify. You can download Spotify to your phone, whatever type of phone you have or your computer. We actually have the video that will be on Spotify, that is actually a platform to listen to podcasts, and you’ll be able to see it all there. It’s a video podcast. Another way is you can go to YouTube, and we have this on YouTube as well, but the Spotify deal is really nice because you can just watch it right on your phone and see these visuals. So just be aware of that. So, Shawn, could you maybe set this up for us and help us to understand why are we having this conversation and maybe what’s going on with the drug plans?
Shawn Southard:
Sure. Back in 2022, the Inflation Reduction Act was signed into law by President Biden, and that was a very, very big piece of legislation. One of the pieces of legislation that was in that act was dealing with Medicare and prescription drugs to try to really bring down the cost to the Medicare beneficiaries with their prescription drugs moving forward. It was an Act that each year had something different that was happening, and we’ll review those here shortly. But this year in 2025, the upcoming year, is, as you mentioned earlier, is going to be the year where I believe, and most people in Medicare that work in Medicare believes that we’re going to see some of the more significant changes for the beneficiary as far as driving those costs down.
Radon Stancil:
Excellent. So can you just walk us through this? And again, I’m just going to tell everybody. I just want everybody to know. We do have some visuals, but we’re going to walk you through the visuals as good as we can. But just so you know, you can go see this if you’d like on Spotify or YouTube. So we’ll leave it up to you there, Shawn.
Shawn Southard:
Excellent. So I’ll just tell you when you could advance the slide. So basically, I want to take a minute or two to just go over a Medicare 101 refresher for folks. Then we’ll get into the Medicare changes, and then what would be natural next steps from here is what we’ll do. For the refresher, just for those out there that are possibly new to Medicare, coming to Medicare, those that are in Medicare probably know all of this. But for those especially coming new into Medicare, when you get in, you want to initially start your original Medicare coverage, has two parts. Part A is your hospital, and Part B is your medical coverage, and that’s known as original Medicare. From there, the saying is that good friends don’t let good friends stay on original Medicare only because there are gaps in both those coverages in the hospital side and the medical side.
So there are things that people can do to either eliminate those gaps or mitigate the gaps, and there’s really two structures from there. So they can either go into a Medigap to have original Medicare as their first payer with a Medigap plan, backing up original Medicare for those gaps, and then they enroll into a Part D standalone prescription drug plan. That’s one way to do things. Then the other way is, of course, enrolling into a Medicare Advantage plan, which most people will want to get into a Medicare Advantage prescription drug plan, MAPD, which would have the Part D drug plan bundled into it, which would actually help them with their prescription drugs, and so forth. So that’s the base structure of people that are in Medicare. Some have learned that through research recently that we have about 6 million beneficiaries right now just on original Medicare only.
They’re not in a Medigap plan. They don’t have a Medigap plan, nor are they enrolled in a Medicare Advantage prescription drug plan. So they are definitely vulnerable to some financial gaps that are contained inside original Medicare. So if we can advance the slide, want to go over a Medicare enrollment periods, there are four major enrollment periods into Medicare. The one being the most critical right now, with the fall right around the corner, is the annual enrollment period, the AEP. So that is the period that runs from October 15 to December 7, where all Medicare beneficiaries can make changes and do make changes to their structure. If they’re in a Medicare Advantage plan, they can disenroll at this time and go back to original Medicare and then get into a Medigap plan if they can medically qualify for those and get into a standalone drug plan.
If they are not in a Medicare Advantage plan and they’re just on original Medicare and they want to enroll in one, they can at this time. Of course, all changes are effective January 1st. The other election periods, real quickly, are special election periods that can occur with different scenarios. The most common SEP is either people move out of a geographical area or they come off employer group insurance, which would create a special election period and they can get into Medicare at that point, or they can change advantage plans if they are enrolled in one.
The Medicare Advantage open enrollment period is Jan 1 to March 31, or if you’re in a Medicare Advantage plan, you can make a change, one change during that period, or you can dis-enroll from one and get back to original Medicare or an IEP. The IEP initial enrollment period, which is people new to Medicare turning 65, this three months before they turn 65, the month they turn, and the three months after they turn 65. So for those four major Medicare enrollment periods, the one that we really are focusing on is the AEP because this is the time that people are going to really need to dig in, as they say, and look at their coverage and review it and see what’s going on and see what they may need to do in light of the upcoming changes.
Murs Tariq:
So for anyone listening, if you’re looking at the screen, you’ll see the screen’s got all these different election periods, and Medicare in general can be rather confusing. I know Shawn’s calendar is filling up with clients of ours and non-clients of ours that want to understand whether or not they need to make a change or they’re turning 65, and they have questions around what the proper coverage for them is. So throughout this episode, you’re going to realize that Shawn’s got a ton of knowledge on this, and he helps our clients make those decisions. So if you have questions, we’ll make sure you have the opportunity to reach out to Shawn.
Shawn Southard:
Yes, absolutely. Thank you, Murs. So I just wanted to mention briefly, there are some changes coming, obviously, and it’s one of those situations where there isn’t anything we can do about it. “It is what it is.” As they say. I just wanted to also say, too, that unlike Chicken Little, the story of Chicken Little where the sky’s always falling, I don’t want people to go in that manner, like, “Oh my goodness, the sky’s falling, the sky’s falling.” There are some changes. They are coming. We’re just going to go over what those are, and I do believe that you’re going to be okay. It’s just, you need to understand what the changes are, how they may impact you, and what you can do moving forward. So with that being said, if we move on to the next slide there, so the Inflation Reduction Act, as I mentioned earlier, was it was a big act that was signed into law or signed in the law known as the Inflation Reduction Act, and there’s the different parts to it there.
So 2023 was the first year where we had some changes, all vaccines, part D vaccines out there. Now there’s going to be no deductible or cost sharing to Medicare beneficiaries for those. I know when COVID came around, that was really helpful because all the COVID shots were under that. So no copays or co-insurance were necessary for Medicare beneficiaries to get that. Flu shots are under here, immunizations, et cetera, as well as insulin savings program. Insulin was capped at $35 per prescription for a month’s supply for insulin. So that was the first wave of change. 2024, the next year, the catastrophic phase in prescription drug plans, which is the final stage, we beneficiaries have paid out of pocket over $8,000. They still had to pay 5% roughly of the cost of the drug in this phase. But in 2024, the Inflation Reduction Act said, “No, you’re going to pay zero once you get into the catastrophic phase.”
2025, here are the long way to changes. That 8,000 catastrophic out-of-pocket level is going to be reduced down to 2,000. So the most that people are going to have to pay now that are enrolled in Medicare prescription drugs plans is $2,000 out of pocket. That’s the maximum per year. The donut hole, as we always talked about the donut hole, and I know there’s a lot of jokes about the donut hole and all of that that’s been out there for years, that’s completely gone. That used to be known as the coverage gap. Technically, people called it the donut hole. The coverage gap is gone in 2025. During the coverage gap, manufacturers gave a 70% discount on brand-name drugs during that phase, and that is going to be gone. They’d sunset it, obviously, because the coverage gap is going to be eliminated. There’s going to be a mandatory discount program still required by the manufacturers to provide discounts on brand-name drugs, 10% in the initial coverage phase and 20% and what’s going to be the catastrophic stage now.
So they’re still going to have discounts, but they’re not going to be as substantial as they once were. So there’s overall going to be changes, obviously, in cost sharing between enrollees or Medicare beneficiaries that drug plans themselves, the drug manufacturers, and for Medicare, known as CMS, Centers for Medicare & Medicaid Services.
Basically, if we could go to the next slide, I think it might… Then on here, what I wanted to point out is for enrollees, remember that what you’re going to pay out of pocket is going to drop from 8,000 down to 2000. Now, I do want to mention that there are some people that fall into this category and Medicare that are paying over $8,000 out pocket for their prescription drugs, but the percentage is really, really low out there. I would say somewhere between maybe 1.5% to maybe 2.5% of Medicare beneficiaries are actually paying over $8,000 out of pocket. So for those that are listening right now, most of the people that are going to be listening to this podcast or looking at this as well on YouTube, this is not you. You’re not paying this type of money out of pocket for your prescription drugs, but there are some that are out there.
So basically, once again, if you are one of those in that small percentage that are paying over $8,000 out of pocket, great news, it’s going to drop down to 2000. That’s going to be a huge financial relief for you. But not reading between the lines, but kind of reading between the lines, the changes that are really going to impact us, the plans are going to be going from paying 20% of the cost of the drugs in catastrophic stage to 60%. So now they’re going to have way more financial skin in the game, as they say, going from 20% to 60%, as we can see here on this slide here, that’s in 2025, the catastrophic stage, the Medicare is going to pay 20%, manufacturers are going to pay a 20% discount there, and the Part D drug plan itself is going to pay 60%. So that’s going up significantly for the costs for the plans.
Manufacturers, as I mentioned, 10% and 20% of their discounts, and then Medicare is going to be dropping down from 80%. They used to cover 80% of the drug costs in catastrophic, and it’s going to be going down to 20%. So you can see by that information and what I was saying verbally is that costs are going to be shifting from the actual beneficiary over more to the plans themselves. Costs are going to be shifting away from Medicare and the beneficiary, and more costs are going to be going to the plan itself.
So if we can move this slide to the next here, here’s another visual for folks just showing the difference between out-of-pocket outlay from 2024 to 2025. 2024, if you were a beneficiary, that did go into the coverage gap, which was also a small percentage of folks that actually did go in there. They basically calculated that you paid on average about $3,300 out of pocket, give or take, most people that went into the coverage gap stage, which was the donor hole, not catastrophic, but the coverage stage. So what this is showing us is that in 2025, if you were one of those folks that ended up into the donut hole because of your drug regimen and maybe you were taking a one or two or more brand name prescription drugs, your out-of-pocket costs are going to be down to $2,000, which is wonderful, and that’s going to be great news for people that are in that situation.
So if we can move to the next slide, another thing that you need to be aware of is that drug plans in 2025 are going to be required to offer a payment plan for beneficiaries. So this is brand new. Nobody really knows how this is going to look or how this is going to feel because it’s going to be brand new starting January 1st, 2025. Of course, what we found out is, people will have to opt into this, and they’ll have to opt into it each year if they want to do it the following year.
However, if they’re unable to pay the cost of their drugs upfront, when they go to pick them up at the pharmacy or wherever they get their drugs, they can alert the pharmacy. The pharmacy will contact the drug plan, and the drug plan will set up a payment plan for them to be able to spread the cost of those copays or the co-insurance that they’re going to be responsible for over 12 months. So it’s literally going to be financing, if you will, but with no interest, the cost of their drugs. It’s going to be called the Medicare Prescription Payment Plan program. That will also be part of this, starting in January.
So what does this mean for us, literally? So some things here that we need to be aware of, and then going back to all dollars and cents and the percentages and so forth and what we talked about earlier. So the big shift is going to be from moving away from Medicare, paying the lion’s share of things, and the beneficiary and the plans are going to be paying more. So what does that mean? We’re going to be looking at higher premiums, unfortunately, on prescription drug plans. As many of the drug plans out there have a monthly premium, we’re going to see those premiums go up, and they could go up significantly. How much? We don’t really know. We haven’t been able to see the plans for 2025 yet, but we could see significant increases in premiums. Of course, for the few drug plans out there that have a zero premium right now, the standalone drug plans, I think those are going to be no more. We’re going to see premiums across the board.
There’s going to be fewer planned choices out there in geographical regions because, remember, drug plans are based on zip code and where you live geographically. So you may go from having a smorgasbord of plans available to you in your geographical area, sometimes more than two dozen or more plans, and we’re going to definitely most likely see less plans available across the board. There are some carriers, actually, that are getting out of the Part D game altogether. Mutual of Omaha, for example, is one they actually sent out notices a few months ago that they’re actually exiting and getting out of Part D prescription drug plan game. They’re going to stay in there, of course, for Medigap and med supplements, but part D no more.
So we’re going to see fewer carriers out there and fewer choices available. The formularies are going to be stricter. So a formulary, for those that are listening, is a fancy name for the menu, the drug menu, what the plans actually cover, what drugs they cover, and how they cover them. They’re going to be tidying up those formularies and most likely eliminating a lot of the higher-cost drugs from the formularies. So that can be challenging for people who do take the brand-name drugs, and they’re on the higher tiers. Remember when we talked on another podcast, the five drug tiers? Tier five is your highest tier, which is the specialty drugs which tend to… Like oral cancer drugs, people that are taking drugs orally for cancer, and things like that.
Some of those drugs could be eliminated from the plans. Once again, we don’t know specifically which drugs are going to be eliminated, but we have heard that the formularies are going to be cleaned up, and they’re going to be a lot stricter on what they’re going to cover and what they’re going to offer. Then, also finally, prior authorizations, we’re going to see an uptick in needing to get pre-authorization to use drugs on the plan as opposed to just the doctor writing a script and you go ahead and get it filled, and there you go. There’s going to be more communication going to be going on between the plan and the doctor or the plan and the beneficiary to get pre-authorization to use that drug. Then step therapy as well. We’re going to see an uptick in step therapy where beneficiaries are most likely going to be required to use lower-cost drugs first, or generic drugs is included in there before the brand-name drugs, before they’re going to approve that.
If you really need the brand-name drug, you most likely are going to have to go with a lower-cost drug first. That’s called step therapy. It’s going to be impacted. So those are some real impacts that are going to happen out there, and we just need to be aware of it and be ready for it. So once again, what you must do this year, if you’re listening to this, please, please, especially if you’re clients of Peace of Mind Wealth Management, you’re going to need to connect with me, and we’re going to need to look at your Medicare structure and what’s going on. If you’re not clients of Peace of Mind Wealth Management, you still need to connect with me, and we can review your situation, go over what’s happening and how it’s impacting you specifically, and we can move forward from there.
One last thing I do want to mention for those that are in original Medicare with the Medigap plan and not in Medicare Advantage, you’re just in a Medigap plan, medical loss ratios have gone up significantly over the last year, year and a half or so, post-COVID. So a lot of people delayed procedures during COVID, obviously, for many, many reasons, but most likely to make sure they didn’t catch COVID and have something awful happen to them or them pass away. So they just stayed home and stayed put. So a lot of people were not getting procedures done.
Now they’re coming out, they’re getting things done, and they’re putting in claims. So Medigap plans have been seeing high utilization, basically. What that is spelling out for us is what we’ve seen, is that there’s going to be an increase in Medigap premiums. So for those of you out there on Medigap, not to ruin your evening or ruin your day, but you definitely need to be prepared for rate increases on Medigap plans, somewhere between 10% to 15%, or maybe even higher over the next year or two. So just be aware of that as well, because loss ratios are at an all-time high for those Medigap plans.
If we can just move that slide one more. So once again, just to reiterate, it is time. If you are a person who has not or does not really review their Medicare situation every year, this is the year you need to take a hard stop and say, “Okay, I need to do that, and I need to call Shawn Southard at Peace of Mind Wealth Management and get an appointment and go in and see him and take a look at what we have going on in light of the changes and see what we need to do.” There may be some people out there who don’t need to do anything even in light of the changes because maybe where they are is going to still be the best situation, but then there are going to be folks who are going to need to and should make changes with what’s going to be happening.
Murs Tariq:
Yeah. Shawn, it sounds like there are some positive things that are happening, and especially if you are taking a lot of those more costly prescription drugs, as long as they’re still offered, that’s a positive move on the out-of-pocket maximum going down significantly down to that too. But there are changes that are being implemented. In all essence, the way I see it is cover the cost of those changes by higher premiums, potentially exclusion of certain drugs, and all these different things that you mentioned. So for sure, the glaring thing here is, you need to get these policies and these plans reviewed by someone you trust. So thanks, Shawn. I think this is something that we’re going to learn more and more about. Radon, you got any more questions?
Radon Stancil:
No, I think it was really good. Thank you, Shawn. I’ll just reiterate one thing here, is that if you like to read about things, we do have this also written in a blog as well. It’ll be on the website, which is pomwealth.net. Go to our blog page, /blog, and we’ll have a whole article there. Thank you very much, Shawn, for coming on and chatting with us, and we look forward to future Medicare-focused episodes.
Shawn Southard: