Q: I understand Medicare will be making changes to the prescription drug benefit for plan years starting 2025. What are the changes and what does it mean to our organization and our employees?

A: The Inflation Reduction Act of 2022 (IRA) includes several cost-reduction provisions affecting Medicare Part D plans, which may impact the Medicare Creditable Coverage status of employer-sponsored prescription drug coverage beginning in 2025. The new benefit will have three phases instead of four and will decrease the in-network prescription out-of-pocket costs cap to $2,000 for calendar year 2025 for Medicare recipients. This significantly decreases the 2024 out-of-pocket cap of $8,000. 

Medicare part D will now have three phases instead of four.

1. The deductible phase – Medicare beneficiaries pay out of pocket the full cost of drug until they meet their deductible and expenses accumulate toward the full cost of drug until they meet their deductible and expenses accumulate toward the out-of-pocket cap.
   
2. The initial coverage phase – Depending on the Medicare plan, either a flat dollar co-pay or coinsurance % of the drug is paid by the Medicare beneficiary and will accumulate toward the out-of-pocket cap set at $2,000 for the 2025 calendar year.
   
3. The catastrophic phase – Once the $2,000 out-of-pocket maximum is met, the individual will go the catastrophic phase, and drugs will be covered at 100%.

Employer plans that begin on or after January 1, 2025, will need to evaluate if the prescription drug coverage provided in each medical plan is creditable using the new threshold. Creditable coverage means actuarial value of the coverage equals or exceeds the actuarial value of defined standard prescription drug coverage under Part D in effect at the start of such plan year, not taking into account the value of any discount provided under section 1860D-14C of the Social Security Act and demonstrated through the use of generally accepted actuarial principles and in accordance with CMS guidelines. Any medical plan with a deductible greater than $2,000 and the full cost of the prescription drugs apply to the deductible may be considered non-creditable.

 As in the past, employers must provide to the Center for Medicare and Medicaid Services (CMS) if the employer drug program is creditable, meaning coverage is at least as good as Medicare Part D coverage. For fully-insured plans the determination will be provided to the Plan Sponsor by the insurance carrier. Groups who are level-funded or self-funded will need to contact their broker to see if the Third-Party Administrator (TPA) will determine creditability or if the group is responsible for the calculation. Self-Insured and Level funded benefit clients of Liberty should contact their account manager to determine resources for the determination. For plan years starting in 2025, employers will need to be sure they clearly communicate if any of the plans they offer are non-creditable when providing the Non-Creditable Medicare Notice.

Why this matters to employees who are covered under a group health plan in lieu of Medicare: 

Employees and dependents who are over age 65 and not enrolled in a creditable plan for prescriptions may be subject to a late enrolment penalty of 1% of the national base beneficiary premium ($347.70 in 2024) for each month the employee does not have creditable coverage. The penalty is for as long as the individual is enrolled in Medicare drug coverage, even if the individual switches plans.   Employees can avoid the penalty if they sign up for Medicare Part D. If the individual is currently not enrolled in Medicare Part A, (which is a pre-requisite for Part D) she/he can enroll at any time without a penalty. For non-calendar year plans Medicare eligible beneficiaries can join during a special enrollment period and will have the opportunity to join Medicare Part D, two full months after the month they lose creditable coverage, or for two full months after being notified that current coverage is no longer creditable, whichever is later.  Medicare Part D plans can be found Explore Your Medicare Coverage.

Employer Resources

• Medicare Part D Changes May Impact Creditable Coverage Status of Employer Plans
• Medicare Part D Improvements
• Final CY 2025 Part D Redesign Program Instructions
• Model Individual Non-Creditable Coverage Disclosure Notice Language
• Final CY 2025 Part D Redesign Program Instructions Fact Sheet

Employee Medicare Eligible Resources

• Enrolling in Medicare Part A & Part B
• Explore Your Medicare Coverage
• Medicare Special Enrollment Periods
• Original Medicare (Part A and B) Eligibility and Enrollment
• Avoid Late Medicare Penalties