Changes are Coming to Medicare Drug Coverage. Not All Of Them Are Good.

I am here to tell you about the major changes coming to your medications and how they will be covered if you are on Medicare in 2025. There is a curtain being pulled over your eyes with the promise of lower costs, but there are levers that are being pulled that most people don't even know exist and don't realize are being used. I'll start with the good news. In 2025, Medicare drug coverage under Part D will have a maximum out-of-pocket limit of $2,000 for the year. So let's take a minute to acknowledge that putting a $2,000 maximum limit on prescription drug costs is an incredible benefit for those with high-cost medications. But now let's take a deeper look into what that really means, and to understand the impacts of this change, we need to understand two important drug terms, how drug coverage used to work prior to 2024 and 2025, and how the 2025 changes have perpetuated three major lies. You can't call them lies. And how the 2025 changes have actually perpetuated three important misunderstandings that most won't even know exist. So first, the two terms that will be important throughout this discussion are drug formularies and drug tiers. A formulary is the entire list of medications that your insurance company is willing to cover. They must have certain drug classes or types of medications on their formulary, but the insurance company is not required to have every brand of medication in every class on their formulary. This means that the insurance plan that you pick for drug coverage will impact which brands of medication you have access to through your plan. Drug tiers are a way to organize that full list of medications on the formulary into a cost-sharing structure between you and the insurance company. Most plans have five tiers, with costs that go up as you move into a higher tier. Tier 1 is preferred generic medications. This is the lowest cost tier, often covered at 100% for you or at a very small copay. Tier 2 is regular generic medications. Tier 3 is preferred brands. Tier 4 is non-preferred brands. Tier 5 is specialty medications, with non-preferred brands and specialty medications making up the most expensive drugs. Formularies and tiers will be important here in a minute. Let's now move on to how drugs used to be covered before 2024 and 2025. Part D prescription drug coverage used to have four phases. I have videos all about this on the channel, but here's a quick summary. The deductible phase is where you pay whatever the deductible dollar amount is for your plan. You pay this first, before the insurance plan would cover any of your medication costs. Many plans would cover tier 1 and tier 2 drugs before your deductible. This deductible phase still exists in 2024, and it will exist in 2025. Once you pay your deductible, you move into the next phase called the initial coverage phase. Everything here works much like what you've probably been used to your entire life. There are copays or coinsurance amounts each time you fill a prescription, and the copay or coinsurance is based on the tier that your medication falls into. Once you and your insurance plan pay a certain amount of money, you are moved into the coverage gap, which has the nickname of the donut hole. Because once you move into the coverage gap, there is a bigger hole in your costs. You now pay 25% of the cost of the medication, rather than those small copays or coinsurance amounts that you were paying in the initial coverage phase. And you're stuck in the donut hole until you and the drug manufacturers meet a new dollar threshold, at which point in 2023, you were moved into the catastrophic coverage phase. While in the catastrophic coverage phase, you would have had to pay 5% of the medication cost for the rest of the year. And this is where real cost problems would continue for those with high cost medications. There was no out of pocket limit. If you found yourself in the catastrophic coverage phase, and you had a medication that costs $10,000 a month, you're still paying $500 a month for that one medication until the new year hit and you're put back into the deductible phase. While in 2024, they got rid of your cost responsibility during the catastrophic coverage phase, which was great. You still had to deal with the donut hole, but it put a cap on your drug costs for the first time under Part D, that cap being right around $3,300. But here's another thing that it did, and watch how clever this is. Here is misunderstanding number one. Each year, CMS, which is the Centers for Medicare and Medicaid Services, issues a press release on what the average Part D premiums will be for the upcoming year. Now watch what we're seeing. In 2021, they announced that the Part D average premiums in 2022 would be $33 per month. In 2022, they announced that the Part D average premiums were dropping to $31.50 per month in 2023. Here's where the craziness happens. 2023 rolls around with the announcement for the 2024 elimination of the catastrophic coverage phase that we just discussed, putting a cap on your new costs. Look at the new announcement of the average prescription drug plan costs in 2023 for the upcoming, at the time, 2024 plan. The average total monthly Part D premium is projected to decrease from $56.49 in 2023 to $55.50 in 2024. This Part D premium stability is all thanks to the Inflation Reduction Act. Now, wait a minute. In 2023, the average premium was $31.50, not $56.49. Magically, to make it look like it would be a wonderful benefit, the 2023 average is arbitrarily changed, meaning massively elevated, to make it look like 2024 will be better for everyone. So what's happening here? A cap on drugs is implemented, and the costs don't just disappear. The drug companies aren't donating the lost dollars in a charitable way. The insurance companies aren't picking up those extra dollars out of the goodness of their hearts. A portion of those lost dollars to account for that cap in your out-of-pocket costs are passed on to everyone else through increased monthly premiums. Again, great benefit for those who are on high-cost medications. I can't stress that enough. Part of that benefit is being paid for by everyone else paying higher monthly premiums. And it's almost like Orwell's 1984 here, or a Jedi Mind trick. These aren't the numbers that you're looking for to make it look like a blessing from on high to everyone with drug plans in 2024. The average is going down, but it's not. The average actually went up by 76% from 2023 based on their own numbers to 2024. Final rates for 2025 are not submitted yet. We don't have 2025 monthly premiums released, but if putting a cap in 2024 of around $3,300 per person led to a 76% increase in average Part D premiums, what will happen by further capping those costs even more down to $2,000 per person in 2025? But we're not done. There's another important misunderstanding here that many of you on Part D will need to deal with. For those with Medicare supplement plans, there are standalone drug plans out there that you can get that have very low premiums, as in less than a dollar a month. And if you're on one of those plans, that $55.50 average monthly premium cost should make you feel pretty good. By the way, the changes to drug coverage in 2024 and 2025 were announced in 2023. So everyone in this space has known that 2025 is coming. And still some insurance companies took the risk by offering these insanely low premium plans in hopes of getting as many people as possible under their umbrella of coverage before 2025. But why? Why lose money in 2024? To answer that, we need to understand Medicare marketing rules. They are incredibly complex and strict. Both insurance companies and agents are limited in what we can and cannot do to communicate with potential clients, people who are not our clients yet. Guess what happens to those rules for insurance companies when you become a client? They are relaxed, quite dramatically. If you are a client of an insurance company, they can call you without you calling them. They can email you. They can send you letters. After all, they need to be able to communicate with you about any plan or service changes. All of this in a way that they could not do if you were not their client. So if, hypothetically, Part D premiums increased dramatically across all plans in 2025, and even more noticeably on a plan that was less than a dollar a month, your first bunch of phone calls and letters and emails are going to be from your insurance company notifying you of the jump in price. If you don't pay attention to your mail or your phone, you're going to pay a much higher monthly premium. If you do pay attention to your mail, and you don't like the fact that your premiums went up a lot, there are Medicare plans with Part D coverage included at no cost. These plans are called Medicare Advantage plans, and the same insurance companies offering the previously cheap Part D plan also happen to have Advantage plans for you to choose from. You just need to move off of your supplement plan to enjoy the no-cost drug coverage that you've come to appreciate. Now, this is not an attempt to bash Advantage plans. There is a place for those. It is an attempt to bash marketing tactics of selling Advantage plans as the same as original Medicare and a supplement plan with a drug plan. There are major differences between Advantage and supplement plans, not only for you, but insurance companies as well, that we cover in this video, and it will pop up in this corner. There is a very clear reason why insurance companies are willing to take the risk in 2024 of super low-cost drug plans. Now the last misunderstanding with the cost cap on prescription drugs coming in 2025 involves the downline effects of this cap. Go all the way back to our talk about formularies and tiers. For those of you already on Medicare, make sure you keep a close eye on first, whether or not your medications stay on the formulary, that list of covered drugs, and second, which tiers that those medications fall into. Look for certain medications to potentially fall off formularies and others to move up tiers, leading to higher cost-sharing responsibility on your end. Supplement plan cost increases are already in the double digits for many plans in 2024 and 2025 across the country, on top of potential increases to drug plan costs. Finally, if you have an Advantage plan, be sure to watch for those same shifts in formularies and tiers, as well as a shift in other benefits, meaning things like dental, vision, Part B buybacks, co-pays, max out-of-pocket numbers, or even monthly premiums added to $0 premium plans. These are some of the levers that companies can pull to make up for the additional drug cost adjustments that are coming to them and you in 2025. Okay, why did I make this video? The information I just shared with you is not something that most in this space are comfortable sharing publicly. It could cause certain large entities to become quite angry with me, but I hope that by sharing this with you, you and your agent will be able to work together in a more collaborative way to help us all deal with the positive and negative changes coming in 2025. If you don't have any issues with your plan right now, it's easy to fall into the autopilot mode. So many people come to us in a panic because they've been on autopilot when it comes to their Medicare coverage over the past one, two, five years, and then they sadly realize that their plan's fixed costs for Medicare have gone up quite substantially. This is what insurance companies hope you do. They hope you don't check for the changes. They hope you continue to pay higher premiums as they increase. Every September, you get an annual notice of change from your insurance company outlining any changes to costs and coverage of your medications. If again, hypothetically, your costs go up, it makes sense that you would be frustrated. We are frustrated as well. We are human beings who genuinely care about the people that we work with. Your agent did not make these changes, but they are here to help you navigate them. If you are on Medicare and using an agent, please be patient with them come October. You need to understand that we are under constant pressure to comply with Medicare guidelines in our communications with our clients. There are strict limits on what we can and cannot say, even when you are a client and even when your plan experiences a major negative change. For example, an agent cannot share plan specifics for 2025 plans until October 1st. So if you're watching this and your initial reaction is to call us up or to reach out to your agent to get 2025 figured out, please don't yet. We don't have 2025 plan information, and even once we get it, we can't share that news until October 1st at the risk of fines and certifications being pulled away from us. If you, the individual person, either about to go on Medicare or you're already on Medicare, are trying to navigate all of this by yourself, I hope this video helps. But this whole entire video was about one change to drug coverage in one year. Please know that you do not have to do this alone. 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