What You Need to Know About Medicare Part D Changes

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the important and often confusing world of Medicare Part D with Medicare expert Shawn Southard. With the implementation of the Inflation Reduction Act Medicare provisions in 2025, significant updates have changed the way Medicare drug coverage works, especially for those nearing or already in retirement. Whether you’re currently working and covered by an employer plan or about to transition to Medicare, this episode breaks down exactly what you need to know to avoid unnecessary costs and lifelong penalties.

Listen in to learn about how Medicare Part D changes affect your coverage decisions, how employer coverage and Medicare interact, and why understanding creditable drug coverage is now more crucial than ever. Shawn also discusses HSA and Medicare rules, key timelines for enrollment, and strategies to avoid the dreaded Medicare late enrollment penalty. This is a must-listen for anyone planning to retire comfortably while staying informed and protected when it comes to their Medicare Part D options.

In this episode, find out:

·      What exactly Medicare Part D covers and how it works.

·      How the Inflation Reduction Act Medicare provisions lower out-of-pocket drug costs.

·      What “creditable” drug coverage means and how to know if your employer plan qualifies.

·      When and how to enroll in Part D to avoid Medicare penalties.

·      How HSA and Medicare rules impact your decision to delay enrollment.

Tweetable Quotes:

“With Medicare Part D changes, what used to be a no-brainer may now require a complete reevaluation.” – Murs Tariq

“Missing a 63-day window could mean a lifetime of penalties—knowing your coverage status is critical.” – Radon Stancil

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 transcript:

Welcome everyone to secure your retirement. Today is an episode I think is going

to be very, very beneficial. And Murs and I are very happy to have Shawn Southard.

He’s a regular now on the Secure Your Retirement podcast,

and he’s our Medicare guru. Shawn, thank you so much for coming back on the

podcast today and helping us with this very, very easy to understand,

non -complicated topic of Medicare. – Well, as always, thank you guys for having me

on the show. It’s a pleasure to be here and look forward to talking with you guys

today. Excellent. Well, I was being a little bit sarcastic in my statement. Medicare

I think is probably one of the most, I don’t know, complicated things to think

through. And I think what makes it complicated in

scenarios that might be very right for one person and very wrong for another person.

Today we were talking to a person, and they said, “Hey, I just got through talking

to Sean and we thought we were going to go do this one thing because we thought

it was the right thing to do because they had coverage that it could be through

their employer.” They said, “But Shawn really helped us to appreciate that. That might

not be the best scenario for us.” And I mean, what I thought would have been a

simple answer was not a simple answer. So today, Shawn, what we’re going to ask you

to talk a little bit about is the different things that we need to know about

Medicare Part D and the changes as well as your employer health coverage.

But before I get into this too far, I want to talk to you about the changes, but

just so the audience is with us because I think this ABCDEFG stuff gets us

complicated. Could you do a nice little, just first thing here, what are we even

talking about when we say Medicare Part D? – Right, well Medicare Part D is part of

the alphabet soup. It’s D for drug, prescription drug coverage. It’s the prescription

drug coverage of Medicare known as Part D. – Okay, excellent.

So, it’s dealing with, with specifically medications or drugs that we would take to

help us as we’re dealing with different sicknesses? That’s correct. It’s the scripted

stuff, stuff that doctors would write scripts for, and you would get filled either

at a brick-and-mortar pharmacy or a mail order pharmacy. Okay, great. So now that

we know D is really for drug and getting all those things to take care of us,

what’s going on with Medicare Part D here in 2025. And why is it so important that

we’re talking about it? – So, the changes that are occurring have been coming out of

the Inflation Reduction Act of 2022 over the last couple of years. The biggest

change just occurred on January 1st of 2025, this year.

Part D, the biggest change there is the maximum amount of pocket that people pay

for prescription drugs dropped from $8 ,000 down to $2 ,000 per year,

which is bringing some great relief to Medicare beneficiaries now with their

prescription drugs in Medicare. So that’s really great news, but that change has also

made the Medicare standard stronger than before, okay,

than ever. So, what’s happening is employer plans, people who are still working and

they’re approaching 65 getting their prescription drug coverage to their employer plan,

they may find out that the employer plan drug plan may not be credible for

Medicare’s purposes moving forward. All right. So, I always love whenever terms are

said like, you know, part D and now you just talked about this other term, talked

about credible. Creditable, and I’m thinking, well, what is credible coverage and why

does that even matter? Like, what does that mean? – Right, well, I know credible is

a tough one. It’s a tough one to spell for sure, isn’t it? Spelling bees, it’s a

tough one. People always forget the T on that one. But credible coverage, basically

what it is, what it means very simply is that if your employer prescription drug

plan is credible in the eyes of Medicare, that means that it pays as much, if not

better, than the drug plans in Medicare, actuarially speaking. But with these changes

that have occurred with the Part D Medicare plans,

some of the, not all, but some of the employer plans that are offered with the

prescription drug coverage, they may not pay as well or better than Medicare plans.

So, if that is the case, that means that your employer plan is not going to be

credible for prescription drug coverage. It’s most likely still going to be credible

for the medical components, just not the prescription drug components. So, this is why

it really matters if you do find out or get a letter that your plan at work is

not credible for the drug coverage, you only have 63 days to get enrolled into a

credible drug program with Medicare to avoid a permanent lifetime penalty,

late enrollment penalty for Part D. Okay, so I guess before this change here in

2025, Shawn, it was like, in most cases, it sounded like it would have been a no

brainer, if you’re working past 65 to stay fully on the employer sponsored healthcare

plan, because usually the benefits are slightly better than what Medicare was

providing. Now with this change, it’s not as much of a no brainer is kind of what

I’m hearing, and that there’s some nuances that may make it better or more

advantageous to get on Medicare when you thought you were going to stay on the employee

plan. Is that kind of what I’m hearing? Yes, there’s a lot of truth in that,

Murs, Before, it was pretty much autopilot, no -brainer. Yeah, you’re working past

65, just stay on the employer -based coverages, and you’re going to be good until

you retire. Now, with this change especially, that could prove to be otherwise.

It may be more advantageous for you to really look into getting into Medicare. But

each case is going to be separate and unique to the individual and their families

and their situations. Yeah, so it seems like it revolves around this world word of

“Creditable.” So how does someone know if the plan that they’re on is still

creditable? So how you’re going to know, that’s a great question, Murs, is luckily

you don’t have to guess. Your employer is required by law to inform you and to

tell you about it. So, every year around October 15, you would get a letter or an

email from your human resources department letting you know whether the current plan

is credible or not. And it may hear some buzzwords that may come through. So, it

may be called credible coverage notice you may receive, or it may be called the

Medicare drug coverage letter, or even part D notice of credible coverage. So, come

under any one of those titles, but basically, the gist is they’re informing you

officially about the credibility or the non -credibility of the prescription drug

coverage. So, if you’re over 65 and knowledgeable for Medicare, 65 is still the magic

number for that, and your notice from HR says that the plan is not credible, then

you’re going to need to act rather quickly to avoid that late enrollment penalty

with Medicare and Enrolled, yeah. So, a quick clarification question.

The 63 days that you mentioned earlier, is that 63 days from getting that notice

from your HR? Because they may send them all out at different times, or is there a

rule there? Yeah, no, that’s a great question too. It’s when the plan, because

basically, they’re going to be letting you know what open enrollment, right, when the

new plan is going to start. that’s generally what they’re going to be doing. So

when your plan year ends and the new one begins, that’s when you’re really going to

need that 63 -day, you got 63 days from that point. There probably will be, just

like with everything, you may find out mid, the employer may find out that their

prescription drug coverage is not cut off for Medicare mid-year, in between the

policy years, and that’s where it could get a little tricky for people because if

they find out in March that it’s not credible and you get that notice, it’s going to

be 63 days because that’s going to be immediate. It’s like, hey, our coverage is

incredible anymore. But hopefully most of the scenarios will play out where the

plan’s going to be ending and the new one’s going to be beginning. So, it’s kind of a

smoother transition for people there. – All right, so we talked about all these

notices. So, what do I do if I get one of these noncreditable notices from one of

these resources that you talked about? Right. Well basically what you’re going to

want to do is enroll in Part D as quickly as possible. You can,

if you are approaching 65, this is probably the best-case scenario is that you’re

not 65 yet, you’re approaching 65 and you’re getting these notices you can enroll

into Medicare Part D during your initial enrollment period, which is the three months

before you turn 65, the month you turn, the three months after that’s the initial

enrollment period. Or you can, if it’s time, usually group benefits will have open

enrollment during the fall, which coincides with Medicare’s open enrollment in the

fall, well, October 15th to December 7th. And if that were the case, then you know,

go ahead and enroll there during that time period and /or

Medicare is allowing a special enrollment period called an SEP If the plan is found

out to if the employer plan is found out not to be credible You can use a 60 -day

special enrollment period to get yourself enrolled Into one of them part the

Medicare plans but the Big, just here, the big, big point is to make sure that

you avoid that 63 day gap in coverage because that’s the trigger for the late

enrollment penalty to start accruing and basically that we haven’t mentioned it,

but the penalty just so our listeners know on part D is 1 % for every month that

you go not being enrolled in a party plan when you are supposed to be. And in

that percentage, whatever ends up being, is charged against the national base premium

for Medicare drug plans, which in 2025 is $36 .78.

So, to be practical there, if you want a whole year not being a Part D when you’re

supposed to be, you’d have a 12 % penalty, which is lifetime, and that would be a

set against that $36 .78, which ends up being $4 .41 a month.

So that’s what your penalty would actually be, is $4 .41 a month on top of any

premiums that you have for your plan, but that’s lifetime. It’s going to be charged for

the remainder of your years. – Right, yeah, definitely a penalty we want to try to

avoid. You know, when we were talking before recording this episode,

you mentioned that, and you said it here on the episode too, that it’s kind of a

case -by -case basis and you’ve already had some conversations with clients that know

that they’re going to be impacted by this change. But you did mention there’s an

evaluation here if someone’s utilizing an HSA through their employer plan. So, let’s

talk more about that and what that really means as far as the decisions people

would have to make if they’re using an HSA. – Sure, and I had a couple of cases

this year. People call in to let me know that this is happening and they’re very

confused and so forth. A couple of folks did not contribute to an HSA and a couple

did. So, HSAs are health savings accounts. They’re allowed, the IRS allows those for

people that are enrolled in high-deductible health plans, HDHPs, and they’re a

wonderful tool to help will save money for qualified medical expenses. And they’re

also, a really great tool for retirement purposes as well. In 2025, the IRS sets the

limits, of course. The IRS allows a person to, if they’re making a family

contribution, if they’re enrolled in HSA as a family and contributing as a family,

they can put in $8 ,550 for 2025,

and they can put in an extra $1 ,000 as a catch -up if you’re 55 years or older.

So basically, get almost $10 ,000 in there, money that’s going in tax deferred and

growing tax deferred and can be used tax -free when used for qualified medical

expenses. So, people who are contributing to an HSA at work and they get a notice

that their prescription drug plan not going to be credible forthcoming on their plan.

They really need to, as a case-by-case basis, really figure out and sit down with

someone like me and possibly their tax guru or their tax person and figure out if

it’s going to be worth getting into a Part D plan and avoiding that later Roma

penalty because if you’re going to work another two years and you are going to

contribute the max into your HSA, that’s almost $20 ,000 over two years.

Yes, there’s going to be some penalties there by the IRS for excess contributions.

They’re going to make those contributions taxable and any interest that’s gained is going to

be taxable with a 6 % excise tax on top. But you need to figure out what that is

versus what your penalty and D is going to be because it actually in the end it

may work out well even though I’m going to get penalized for excess contributions it

makes more sense to keep contributing my HSA and not get enrolled in a Part D plan

right now, because we didn’t mention but in order to enroll in Part D prescription

drug plan with Medicare you have to be at least enrolled in Part A of Medicare

which is the hospital coverage and that would say to the IRS, well, you are

enrolled in Medicare, now you’re not allowed to contribute your HSA anymore. So, it’s

just a case -by -case basis. You really need to think some of these things through

and take a look at it if and when you do get those letters of, you know,

non -credibility for your prescription drug coverage at work. So, Shawn, if somebody’s

listening to this right now and it’s like, okay, we’re kind of going through all

these, you know, topics and trying to, again, talk about something that sounds

somewhat complicated. If we had to just sum this up, what would, what should

somebody does right now if you’re in this phase of life where this might be a

situation that I got to think about? Yeah. Well, first of all,

just always keep it simple, right? So just if you are 60, if you’re approaching 65

or you are 65 and you’re still working, just be vigilant now and be looking out

for that credible coverage notice that can come and come in come to you either an

email or by letter call be proactive call the HR department say hey you know I

heard this podcast or I heard some things and about this topic and I wanted to

know if you guys know at this point is the prescription drug coverage credible or

not we’re going to be in our next plan in years so kind of try to find that out

I’ll start carrying drug costs, if you can, to your current plan to maybe one in

Medicare. And of course, if you do and you decide to do a role in Part D, call

me. I’ve been doing this for a long time. I know a little bit about a little bit,

as they say. And I can get you answers that you’re going to need and help you get

to where you need to be as well with the You know, call me contact me and give

me a call and I can help you awesome Well, thanks a lot Shawn for bringing some

clarity to a very tricky subject. That’s why we love having you here in our office

Because we know you have some very meaningful Conversations and help people make

decisions around Medicare not just part D But everything from that ABCD to you know,

the meta gaps and everything so thanks for carving out some time and hanging out

with us We really do appreciate it. Thank you. I always appreciate you guys having me on and it’s always a good time. So, thank you so much.