First, let’s recap briefly. In 2003 when the original laws that established the Part D plan were passed, Original Medicare (created in 1965) never included provisions for outpatient prescription drugs. Original Medicare still doesn't have an outpatient prescription benefit -- this is why the Part D plan was created and added to Medicare.
Part A of Medicare (hospital/inpatient insurance) provides for drugs used during a hospital stay. Part B (medical/outpatient insurance) pays for medications administered in a doctors’ offices (ie. Infusion therapy). The sorts of drugs obtained through a pharmacy were never covered by Original Medicare.
The Medicare Modernization Act of 2003, while creating Medicare Advantage plans, also established the Part D, outpatient prescription drug program. Part D started rolling out to consumers in 2005, with it taking full effect in 2006.
The Part D program, as originally crafted, had 4 layers of coverage starting on the first of each year:: the Deductible segment, followed by the Initial Coverage segment, then the Coverage Gap, and finally the Catastrophic layer. Thresholds of costs determined the movement of a consumer from one layer to the next. These thresholds changed each year according to cost and inflation data. It is important to note that Part D plan, just like Original Medicare, did not have an out-of-pocket maximum. The graphic below represents 2023 numbers. The impacts of the Inflation Reduction Act changed the numbers for 2024 and will change both the numbers and structure for 2025.
Originally, the Deductible layer represented a 100% cost to the Medicare member; the Initial Coverage layer was a 75%/25% split of costs between plan and member; the Coverage Gap, or Donut Hole, was a 100% cost borne by the member, and the Catastrophic segment was either a defined copay or 5% of costs paid by the member.
In 2010, as part of the Affordable Care Act, Medicare Part D was modified, and primarily featured the costs of the Coverage Gap divided between the member, with a 50% discount from the manufacturer and payment by the plan. Further the ACA provided for a phase in of the coverage gap provisions through 2020. In addition, during this entire period, the plans began offering more and more coverages with copayment, at all levels, and some plans modified the deductibles by either eliminating or reducing the amount or applying the deductible to only certain tiers of drugs.
With that as a back drop, let’s return to the Inflation Reduction Act changes as they will apply in 2025. To do that, let’s compare the Part D plan structures for 2023, 2024 and then for 2025. To do that, let’s look over the graphic below, which was created in 2023::
In 2025, the deductible layer will still be in existence, although it will be $590. Plans may offer the same accommodations as they have in the past few years with reduction or elimination. Some plans may apply the deductible to only certain tiers of drugs, or some may keep the full deductible in place.
All that said, let me put some context on outcomes. Part D plans embedded within a Medicare Advantage plan structure will probably show the least overall change in costs. MAPD plans typically have $0 deductible, and often offer Tier 1, and sometimes Tier 2 Rx at $0 copay, if ordered through mail order. Some of this setup may change for some plans — for example a deductible greater than $0 and Tier 2 Rx with copays greater than $0.
Most likely is that Stand Alone Part D plans (which typically are purchased along side Medigap plans) may have higher premiums. For example, I would not be surprised if a plan being offered in 2024 for $35/month, may be closer to $50-60 per month in 2025, with higher copays.
Also, I will not be surprised at all to see coinsurances (ie. percentages) charged instead of copays on plans starting on Tier 2 drugs. In fact, we already began to see that in 2023 and to a greater extent in 2024.
Some related changes for 2025:: already mentioned in the main newsletter was that the Catastrophic segment of the Part D plan was effectively eliminated in 2024 by ending the 5% coinsurance, making it 0% and for all practical purposes capping the out-of-pocket maximum in the mid $3000 range.
Also in 2025, the eligibility for Low Income Subsidy for Part D plans, also called Extra Help, will be expanded to 150% of the Federal Poverty Level (FPL), making extra help available to a larger population. It will make sense for you and I to take a look at your eligibility for LIS.
Part D plans will also offer an option for a periodic prescription payment plan, (the term M3P has been coined for this program) where the amounts owed for premium payments to a pharmacy will be spread out over the time remaining for the plan within the effective calendar year. This is an effort to ease the monthly financial impact, primarily for those with high cost prescriptions. For those with low prescription costs, the M3P program will not be useful.
Reprise:: Conclusions (for now)::
Reference the above comparison graphic — as you can see, the maximum out-of-pocket ($2000) is less than the recent thresholds for entry into the coverage gap in previous years. This means that the coverage gap will disappear.
We expect to see some copays still being used, particularly on lower level drugs like Tier 1 and possibly some Tier 2. However, we expect to see more drugs at Tier 2 and above being subject to coinsurance (percentages) rather than copays. A coinsurance is a percentage, so that natural question is ”a percentage of what?” This means that during your drug plan comparisons for 2025, it will be important to find out what the “retail pharmacy cost” is for the medications you are taking so that you will know which drugs, and the plans, will actually cost you the least.
From the graphic, compare the most recent Part D structure to 2025 to 2024. Notice how much less the drug manufacturers and the federal government will be paying for Part D coverage. Also notice that the previous discount amount above the coverage gap space will be paid by the plan rather than the manufacturer. This displaced revenue will have to come from somewhere and that “somewhere” is likely going to be the Medicare member in the form of higher premiums, higher copays/coinsurances, and re-configured formularies (ie. Drugs place into higher tiering at higher costs)
Many folks have purchased a stand alone Part D plan to accompany their Medigap plans. Because such plans have no other source of revenue to support the coverages except for the premiums, we anticipate that premiums will increase significantly. I will also not be shocked to see formulary changes and drug tiering jumps, along with copayment and coinsurances increases.
Medicare Advantage plans may not have to adopt such drastic cost structure changes because the carriers design their overall plans from the capitation payments made to them from Medicare. They should, therefore, find it easier to spread out costs. We will not be surprised, however, to find that these MA plans will offer fewer of the “goodie bag” benefits as we have seen in the last few years.
Most of the “we expect” or “we anticipate” claims made above are no more than conjecture right now, based on common sense and perhaps a health dose of cynicism. We will not have a clear understanding of the effects of the 2025 changes until we officially see the plans, which will not be until October 1.
It will be a huge help for both you and me, if you can updated your medications list and list of providers well prior to October 1. I will soon be sending out an easy way for you to do this, so be on the lookout for more mailings from me.
Also, watch for your Annual Notice of Change communications from your carrier in September, by either regular mail or email. Do not ignore this — please feel free to call me to discuss it. While the ANOCs will only tell you about change to the Part D or Medicare Advantage plans you have had in 2024, we can base 2025 decisions on a comparison review starting from your ANOC notices. Lastly, if you are planning any travels or vacations during the AEP, don't forget to schedule a meeting or talk with me when you are available.
(the graphics in this article were used from public presentations of the Kaiser Family Foundation, KFF.)