The Inflation Reduction Act of 2022 is making major changes to the Medicare Part D program as we head into 2025. As the law is promoted as providing “..meaningful financial relief for millions of people with Medicare by expanding benefits, lowering drug costs, and strengthening Medicare for the future.”, we know that it will inevitably lead to some confusion from our Medicare clients across the country. Here are the key changes you need to understand so you can better inform your clients and be their source of truth as they look for their best-fit coverage options this AEP.
Elimination of the Coverage Gap
The Inflation Reduction Act (IRA) has already caused a big change from 2023 to 2024 with the elimination of the catastrophic coverage coinsurance once a client reaches their True Out-of-Pocket (TrOOP) limit, but there’s a much bigger change coming in 2025 – elimination of the Coverage Gap (Donut Hole).
Starting in 2025, plans will have a simple 3-phase design that consists of:
- Deductible Phase
- Initial Coverage
- Catastrophic Coverage
$2,000 Annual Out-of-Pocket Limit
The $8,000 TrOOP limit will see a major change as the IRA slashes that figure by 75%, creating a record-low $2,000 out-of-pocket limit on Part D benefits. With the elimination of the catastrophic copay in 2024, and the donut hole in 2025, mid to high Rx Medicare beneficiaries can expect to pay less for their medications than ever before.
The confusion, however, stems from the calculation of the True Out-of-Pocket costs for 2025. While that $2,000 limit is an already attractive figure, most Medicare beneficiaries will not actually spend that amount before they reach the catastrophic limit. The reason is that the 2025 TrOOP calculation includes not just the deductible (if any) and the copays/coinsurance in the initial coverage, but also the difference between a “standard defined benefit” and an “enhanced alternative” plan.
Standard Defined Benefit means a Part D program that follows the program minimums, including:
- $590 deductible
- 25% coinsurance during the initial coverage phase
- 100% coverage after the $2,000 TrOOP threshold
Any Part D plan that covers drugs that are excluded from the program and/or reduces or eliminates the defined standard deductible or cost sharing in the initial coverage stage is considered an Enhanced Alternative (EA) plan, and that’s when the math goes sideways.
For example, an average Part D program (either stand-alone or MAPD) looks like this:
- $590 deductible (Tiers 3-5)
- $0 Tier 1
- $10 Tier 2
- $50 Tier 3
- 30% Tier 4
- 25% Tier 5
Since the deductible is eliminated for Tiers 1 and 2, and the copays are less than the 25% standard defined benefit, this would be considered an Enhanced Alternative plan. When calculating the impact on TrOOP for a Tier 3 medication with a retail cost of $600 for a 30 day supply, 25% of the retail cost ($150) would be applied towards the TrOOP instead of the $50 the client pays at the pharmacy counter. Based on the fact that over 90% of all Part D plans fall into the EA category, there are very few situations where a beneficiary will actually pay the $2,000 out of their pocket.
Medicare Prescription Payment Program
Our last major change coming in 2025 by the IRA is the creation of the Medicare Prescription Payment Plan, or M3P. This new program will allow Medicare beneficiaries the option to spread out their drug expenses across the calendar year instead of paying high costs when filling a prescription. Beneficiaries can elect to be part of this program at the time they sign up for their plan, or at any time during the year.
Depending on their projected Rx spend, this could be beneficial to clients that are taking high-cost medications and could see a big bill at the beginning of the year, or those with low usage but are prescribed a high-cost medication any time during the year.
There’s also a Point-of-Sale trigger that will force pharmacists to notify beneficiaries of this program if any of the medications are equal to or great than $600 retail cost for a 30-day supply. Once a client elects to be part of the program, they will forego paying the pharmacy but will receive a monthly bill from their insurance carrier with the amount they owe for that month instead.
Calculations for this program are true “government math”, with a separate calculation for the first month’s amount and one for subsequent months that make it extremely difficult to figure out by hand, and even more difficult to explain to your clients. The best-practice here is to notify your high Rx utilizers that there exists a program where they can spread their Rx costs via monthly payments, and they’ll receive information from their carrier on joining the program.
We encourage you to utilize JSA’s multi-carrier quoting and enrollment tool to help you find the best-fit plans for your clients, see the new Part D math, and submit your enrollments this AEP and beyond. With all these changes, being able to easily see what’s available and do enrollments in one platform is going to save a massive amount of time and keep your sales process as efficient as possible. You can learn more about these tools and everything JSA’s created to help you maximize on these changes in the Medicare market by visiting our AEP Action Plan resource page.
