Medicare Changes 2025 Key Changes in Prescription Drug Coverage

Big changes are coming for Medicare in 2025, particularly on the prescription drug plan. If you want to know all the changes and how they're going to affect you, make sure you listen to this entire episode. To learn more about how to secure your retirement and all the different elements you need to know, please subscribe to our channel and hit the bell so you'll be notified when we release episodes every Monday. We have helped hundreds of our clients gain clarity and get on the path to a great retirement. Now it's your turn. Let's dive in. Welcome to Secure Your Retirement Podcast. Today is a whopper. And for whoppers, we'd like to bring on a guest, Merce and I don't want to handle those by ourselves. So we brought on our own in-house healthcare specialist that works really a lot with Medicare, Sean Southern. So Sean, thank you for coming on and chatting with us today. Yeah. Thanks for having me. So the real topic of what we wanted to go over with you, Sean, 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 of different ways when it comes to the prescription drug plans in connection with Medicare. And 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 or 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 Sean 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. And 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 Sean, could you kind of maybe set this up for us and help us to understand why are we having this conversation and kind of maybe what's going on with the drug plans? Sure. Well, 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 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. And 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, you know, some of the more significant changes for the beneficiary as far as driving those costs down. Excellent. So can you kind of 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 it on Spotify or YouTube. So we'll leave it up to you there, Sean. Excellent. So if you could just I'll just tell you if you can advance the slide. So basically, I want to take a minute or two to just go over Medicare one on one 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. And for the refresher, just 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 as 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. And then the other way is, of course, enrolling into a Medicare Advantage plan, which most people will want to get into a Medicare Advantage plan 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 kind of 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, I want to go over 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. They can, if they're in a Medicare Advantage plan, they can disenroll at this time and go into 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 in 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 January 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 disenroll from one and go 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. Yeah. So for anyone listening, just looking at, if you're looking at the screen, you see the screen's got all these different election periods and Medicare in general can be rather confusing. I know Sean'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 Sean'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 Sean. Yes, absolutely. Thank you, Merce. 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, right? It is what it is, as they say. And I just wanted to also say, too, that unlike Chicken Little, you know, the story of Chicken Little where the sky's always falling, I don't want people to go into this 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 know, people are going to – you're going to be okay. It's just you need to understand what the changes are and 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, it was a big act that was signed into law, or it's signed into law, known as the Inflation Reduction Act. And there's 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 co-pays 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 where 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. And then 2025, here are the long-awaited changes, okay? 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 and 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, there was manufacturers gave a 70% discount on brand-name drugs during that phase. And that is going to be gone. It's sunsetted, 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% in 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, the drug plans themselves, the drug manufacturers, and for Medicare, known as CMS, Centers for Medicare and Medicaid Services. Basically, if we could go to the next slide, and 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 2,000. Now, I do want to mention that there are some people that fall into this category in Medicare that are paying over $8,000 out of 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. That's going to drop down to 2,000. That's going to be a huge financial relief for you. 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 are 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, Medicare is going to pay 20%, manufacturers are going to pay 20% discount there, and the Part D drug plan itself is going to pay 60%. So that's going up significantly with the costs for the plans. Manufacturers, as I mentioned, 10% and 20%, their discounts, and then Medicare is going to be dropping down from 80%. They used to cover 80% of the drug cost 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 in 2024 to 2025. In 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 donor hole because of your drug regimen, and maybe you were taking 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 of 2025. However, if, and of course people have to, what we found out, people will have to opt into this, and they will 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 up front 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 co-pays or the co-insurance that they're going to be responsible for over 12 months. So it's literally going to be, they're going to be financing, if you will, or, but with no interest, the cost of their drugs. It's going to be called the Medicare Prescription Payment Plan Program, and 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, you know, it's 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 and 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 you know, many of the drug plans out there have a monthly premium. We're going to see those premiums go up and it could go up significantly. How much, we don't really know because we haven't been able to see the plans for 2025 yet, but we could see significant increases in premiums. And 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 plan choices out there in geographical regions because remember, drug plans are based on zip code and where you live geographically. So, you know, 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 probably most likely see less plans available across the board. And 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 MedSupplements, 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 drug is the 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 tightening up those formularies and most likely getting eliminating a lot of the higher cost drugs from the formularies. So, that can be challenging for people who, you know, 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. You know, 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 what they're going to cover and what they're going to offer. And 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, the plan and the beneficiary to get pre-authorization to use that drug. And 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, as you know, included in there before the brand name drugs before they're going to approve that right before. If you really need the brand name drug, you're 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 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. And if you're not clients of peace of mind, wealth management, you still need to connect with me and we can review your situation and go over what's what's happening and how it's impacting you specifically. And we can and we can move forward from there. And one last thing I do want to mention for those that are in original Medicare with a Medigap plan and not in Medicare Advantage, you're just in a Medicare Medigap plan loss ratio. 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 before 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. Right. So they just stayed home and stay put. So a lot of people were not getting procedures done. Now they're coming out and they're getting things done and they're putting in claims. So Medigap plans have been seeing high utilization, basically. And 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, you know, 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 percent 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. And then if we can just move that slide one more. Yeah. So once again, just to reiterate, it is time if you're 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, OK, I need to do that. And I need to call Sean Southard piece of my wealth management and get get an appointment and and go in and see him and take a look at what we have going on and light 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. Yeah, Sean, 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, you know, 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 to, 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 that you need to get these these policies and these plans reviewed by someone you trust. So thanks, Sean. I think, you know, this is something that we're going to learn more and more about. Raden, you got any more questions? No, I think it was really good. Thank you, Sean. And I'll just reiterate one thing here is that if you like to read about things, we do have this also written in the blog as well. It'll be on the website, which is pomwealth.net on go to our blog page forward slash blog, and we'll have a whole article there. Thank you very much, Sean, for coming on and chatting with us. And we look forward to future Medicare focused episodes. Sure. Once again, thanks so much for having me. We hope this video has given you some confidence and clarity as you plan for a worry-free life in retirement. But what else do you need? We have created a complimentary video course called Three Keys to Secure Your Retirement. This video walks you through step by step what you need to do to get ready for retirement. You can also check out our podcast called Secure Your Retirement. You can subscribe below. For more retirement tips, check out these videos. Also, if you find them valuable, please subscribe to our YouTube channel and give us a like.