Medicare Part D Enrollees to Benefit from Program Changes in 2024 and 2025

With nearly two decades having passed since Medicare Part D became operational, notable program improvements are on the horizon for 2024 and 2025.

For background, Medicare Part D is prescription drug coverage available to Medicare Beneficiaries enrolled in Part A and/or Part B.  Beneficiaries access this voluntary program through private insurance carriers and can obtain coverage through a standalone Prescription Drug Plan (PDP) or a Medicare Advantage Prescription Drug (MA-PD) plan (must have both Medicare Parts A and B to enroll in MA-PD).

Medicare Part D plans run on a calendar year basis (subject to change each year) in distinct stages:

• Deductible – enrollees are responsible for a plan deductible up to a maximum ($505 in calendar year 2023).  Some PDPs do not have any deductible (this feature may come with a higher plan premium).

• Initial Coverage – after the Deductible is reached, enrollees have a copay ($) or coinsurance (%) based on each drug’s “Tier Level” as shown in the plan formulary.  The standard Part D design allows plans to charge up to 25% coinsurance, but actual costs will vary and often are lower.  Medicines must be on the plan formulary, or they will not be covered at all (unless an exception applies).  This stage continues until the consumer’s out-of-pocket costs PLUS the amount the plan pays reaches $4,660 (in 2023).

• Coverage Gap (“Donut Hole”) – in this stage, under the original standard design of the Part D program, enrollees bore the full cost of their medicines.  Prior to 2023, the program was gradually liberalized so that in this stage, enrollees pay only 25% of drug costs (with the remainder covered by manufacturer discounts).  During each year, enrollees exit the Donut Hole once their True Out-of-Pocket (TrOOP) costs reach a threshold level ($7,400 in 2023).  It should be noted that TrOOP includes what the manufacturers pay, in addition to costs paid by the enrollee (it does not include what the plan pays during Initial Coverage).

• Catastrophic Coverage – the final stage in a calendar year once an enrollee has hit the Part D TrOOP.  In this stage, in calendar year 2023, enrollees pay the greater of 5% of drug costs, or $4.15 for generics and $10.35 for brand names.  For very costly medicines, the 5% enrollee portion can add up quickly.

To illustrate actual 2023 out-of-pocket drug costs on a standalone PDP, let's review a hypothetical example for a Medicare beneficiary living in Tampa, Florida and taking one costly medicine -- Pomalyst 3mg capsule.  Then, we will see how much the enrollee's out-of-pocket costs will be reduced in 2024 and 2025.

The monthly premium is ignored, but it should be noted that the Plan Sponsor selected in this example provides the lowest standalone Part D 2023 calendar year costs including premiums and drug copays.

According to the Medicare plan finder, this consumer travels through both Initial Coverage and the Coverage Gap in January.  The $7,400 TrOOP is reached, with the enrollee’s out-of-pocket drug cost equal to $3,080.  For the rest of the year, the enrollee is in Catastrophic Coverage paying $1,188 monthly (5% of $23,762 pharmacy retail cost).  Over the whole calendar year, the enrollee’s out-of-pocket drug costs exceed $16,000 (based on the specific 2023 PDP and retail pharmacy).

So, what will change in 2024 and how will this enrollee be impacted?

In 2024, costs in the Catastrophic stage change so that the 5% coinsurance requirement is eliminated (Part D plans will pay 20% of total drug costs in this phase instead of 15%).  Once Part D enrollees (without low-income subsidies, called LIS), have drug spending high enough to qualify for Catastrophic Coverage, they are no longer required to pay 5% of their drug costs, which in effect caps their expenses.

In 2024, the Catastrophic stage threshold will be set at $8,000.  As noted above, this amount includes what Part D enrollees spend out of pocket plus the value of manufacturer discounts in the Coverage Gap.  Under this construct, Part D enrollees who take only brand-name drugs in 2024 will spend approximately $3,300 out of pocket and then have no further cost for covered medicines.  So, in the example cited, the enrollee reduces out-of-pocket medicine costs from over $16,000 in 2023 to about $3,300 in 2024.

So, what is changing in 2025 and how will this enrollee be further impacted?

Out-of-pocket drug spending will be capped at $2,000.

Beginning in 2025, Part D enrollees’ out-of-pocket drug costs will be capped at $2,000.  This amount will be indexed to rise each year after 2025 at the rate of growth in per capita Part D costs.  (This cap does not apply to out-of-pocket spending on prescription drugs covered under Medicare Part B.)

For Part D enrollees who take only brand name drugs, annual out-of-pocket costs at the Catastrophic threshold will fall from around $3,300 in 2024 to $2,000 in 2025.  In other words, Part D enrollees who take only brand name drugs with costs high enough to reach the Catastrophic stage should expect to realize savings of about $1,300 in 2025 as compared to 2024 spending.

The Coverage Gap will be completely eliminated.

The Coverage Gap stage, where Part D enrollees had faced 100% of total drug costs under the original Part D design and currently face 25% of costs, will be eliminated in 2025.  This means that Part D enrollees will no longer face an increase in cost sharing at the end of the Initial Coverage stage, which is the case in most Part D plans, since today's plans usually vary the cost-sharing amounts instead of charging the standard 25% coinsurance during Initial Coverage.

Part D plans and drug manufacturers will pay a larger share of costs for Catastrophic Coverage, and Medicare will pay a smaller share.

Medicare’s share of total costs in the Catastrophic stage (reinsurance) will decrease from 80% to 20% for brand-name drugs and from 80% to 40% for generic drugs beginning in 2025.  This reduction will help address concerns about the substantial increase in Medicare’s reinsurance payments to Part D plans over time, which accounted for close to half (48%) of total Part D spending in 2022, up from 14% in 2006, based on data from the Medicare Trustees 2023 annual report.  Medicare Part D plans’ share of costs will increase from 15% to 60% for both brands and generics above the cap, and drug manufacturers will be required to provide a 20% price discount on brand-name drugs.

Part D plans and manufacturers will face changes to their share of total drug costs paid in the Initial Coverage stage.

Drug manufacturers will be required to provide a 10% discount on brand-name drugs in the Initial Coverage state beginning in 2025, replacing the 70% price discount in the Coverage Gap stage under the current design.  Part D plans will pay 65% of brand-name drug costs.

For further information and graphics that illustrate upcoming Part D changes in greater detail, please refer to this informative article from the Kaiser Family Foundation:

https://www.kff.org/medicare/issue-brief/changes-to-medicare-part-d-in-2024-and-2025-under-the-inflation-reduction-act-and-how-enrollees-will-benefit/.

Until next time,

Andrew Herman

Highlights of the 2023 Medicare Trustees Report

The 2023 Medicare Trustees Report spelled good news for the program’s short-term viability but should not delay Congress from seeking a long-term solution that protects the health care of older Americans, experts agreed.

As part of a webinar this month sponsored by the American Academy of Actuaries, the Centers for Medicare & Medicaid Services’ (CMS) Chief Actuary Paul Spitalnik reported on the program’s finances as detailed in the report.  Three other panelists shared insights on how Medicare’s Hospital Insurance trust fund might remain solvent beyond the currently projected exhaustion date, and more generally how to make the program more sustainable in the long-term.

For background, the Medicare Program consists of multiple parts:

Part A - Covers inpatient hospital and skilled nursing care, post-institutional home health care, and hospice care.

Part A has about 65 million enrollees and is funded primarily by Medicare payroll taxes (1.45% paid by employees and employers, each; 2.90% paid by self-employed; additional .90% paid by high-income earners; and no cap on annual taxable earnings as is the case with the Social Security payroll tax).  Calendar year 2022 expenditures were $342.7 billion.

Part B - Covers physician services, outpatient hospital, diagnostic testing, durable medical equipment, ambulance, some additional services such as general home health care, and physician-administered drugs.

Part B has about 60 million enrollees and is funded approximately 30% by monthly premiums paid by Medicare beneficiaries ($164.90 standard premium for 2023 plus additional premiums charged to high-income earners) and 70% by government contributions coming from general taxation.  A small portion of revenue stems from fees imposed on drug manufacturers.  Calendar year 2022 expenditures were $436.7 billion.

Part D - Covers prescription drugs.

Part D has slightly over 50 million enrollees and is funded by premiums paid by Medicare beneficiaries (average monthly premium is about $32, funding about 15% of total revenues), additional premiums charged to high-income earners, general federal revenues, and state transfers.  Calendar year 2022 expenditures were $125.7 billion.

Part C - Medicare Advantage program.

The Part C (Medicare Advantage) program is an option for Medicare beneficiaries that are enrolled in both Part A and Part B and live in the service area where the private plan of choice is offered.  These plans are provided on a calendar-year basis by plan sponsors contracted with Medicare.  Medicare Advantage plans, which typically include Part D coverage, now cover close to half of Medicare beneficiaries nationwide.

The Medicare program has grown dramatically in both enrollment and paid benefits over the past four decades.  In 1982, Medicare benefits totaled $46.6 billion, or 1.4% of the nation’s gross domestic product (GDP).  The 2023 report found that had grown to $911.2 billion overall, or 3.6% of GDP.

Key highlights of the 2023 Medicare Trustees report are as follows:

The Part A Hospital Insurance trust fund (a long term reserve that has been set aside to cover future costs) is projected to be depleted by the year 2031, three years later than forecast in last year's report.  This is great news for the program's short-term viability, yet the eventual financial shortfall will need to be addressed to avoid reduction in program benefits.

The Inflation Reduction Act of 2022, intended to tamp down inflation and reduce the federal budget deficit, will impact Medicare in several ways:

• Reduces government expenditures for physician and outpatient services covered under Part B

• Increases expenditures for Part D through 2030

• Decreases Part D expenditures beginning in 2031

In the long-term, experts expect the Inflation Reduction Act of 2022 will be beneficial to the financial health of the Medicare program.

While the COVID-19 pandemic caused higher costs for acute treatment, those costs have been more than offset by deaths of seriously ill Medicare beneficiaries as well as reduced spending for non-COVID care.

The growing number of members portends long-term challenges.  James Mathews, executive director of the Medicare Payment Advisory Commission (MedPAC), noted that the number of program beneficiaries is expected to increase from the current 65 million to 80 million in the next decade.  At the same time, the number of workers supporting those on Medicare is projected to decrease from 4 per enrollee to 2.5 per enrollee.

To control costs, MedPAC is advising cuts to post-acute care payments in 2024 as well as reducing Medicare Advantage plan payments in excess of payments made to Original Medicare.  MedPAC also continues to advocate for reductions in Part D plans’ reliance on cost-based reinsurance and improved incentives to manage benefits.  However, Mathews said a hike in hospital payment rates is necessary to cover rising hospital costs.

Marilyn Serafini, executive director of the Bipartisan Policy Center’s Health Program, said it is essential that Congress seek out a bipartisan solution that will keep Medicare fully functioning.  Her group is currently in the midst of crafting recommendations to improve the program in the long-term.

It is developing a set of principles to guide policymakers, including improving the enrollment process, simplifying and improving the traditional Medicare benefit, promoting price competition in both Original Medicare and Medicare Advantage, and re-evaluating the trust fund structure and accountability mechanisms.

It is extremely likely additional funds will be needed to support growing Medicare enrollment.  Bowen Garrett, senior health fellow at the Urban Institute, noted that Congress in the past has always acted when the program neared fund exhaustion—as is happening now.  That’s for good reason, as doing nothing “would be a significant stressor on providers.”

The Urban Institute has examined 12 different options to raise revenues, ranging from an across-the-board increase in payroll or income taxes, to taxing health care benefits, or targeting solutions that would only impact more wealthy Americans or businesses.

Regardless of the path taken, there was broad agreement for congressional action in the near future to save Medicare for future generations.  “Demographics are pretty clear,” CMS Chief Actuary Spitalnic said.  “It is a question of when it will be depleted.”

Until next time,

Andrew Herman, President

AH Insurance Services, Inc.

2023 Medicare – New Expanded Enrollment Access, Update to Premiums and Deductibles, and New Immunosuppressive Drug Benefit

CMS Updates Medicare Enrollment and Eligibility Rules

On October 28, 2022, the Centers for Medicare & Medicaid Services (CMS) issued a final rule effective on January 1, 2023, updating Medicare enrollment and eligibility rules to expand coverage for people with Medicare and advance health equity.  Among the changes, Medicare coverage now becomes effective the month after enrollment for individuals signing up in the last three months of their Initial Election Period, or in the General Election Period, thereby reducing potential gaps in coverage.

The rule also expands access through Medicare special enrollment periods (SEPs) and allows eligible beneficiaries to receive Medicare Part B coverage without a late enrollment penalty.  Examples of new SEPs created by this rule are SEPs for eligible individuals who miss an enrollment opportunity because:

1. They were impacted by a disaster or government-declared emergency;
2. Their employer or health plan materially misrepresented information related to timely enrollment in Medicare Part B;
3. They were incarcerated; and
4. Their Medicaid coverage was terminated after the COVID-19 Public Health Emergency (PHE)s ends or on or after January 1, 2023 (whichever is earlier).

These changes are related to Original Medicare A/B eligibility only.  They do not apply to Medicare Advantage.  The effective dates and SEPs for Medicare Advantage remain unchanged.

The final rule also establishes a new immunosuppressive drug benefit that extends vital Medicare immunosuppressive drug coverage to individuals who have had a kidney transplant and otherwise would lose Medicare coverage.

To view the final rule, refer to this link:

https://www.federalregister.gov/documents/2022/11/03/2022-23407/medicare-program-implementing-certain-provisions-of-the-consolidated-appropriations-act-2021-and.

2023 Medicare Part A Premium, Deductible, and Coinsurance Amounts

Medicare Part A covers inpatient hospital, skilled nursing facility, and some home health care services.  About 99 percent of Medicare beneficiaries qualify for premium-free Part A due to having at least 40 quarters of their own Medicare-covered employment (or the work history of a spouse), or two years having passed from initial eligibility for Social Security Disability benefits.

Enrollees aged 65 and over who have fewer than 40 quarters of coverage and certain persons with disabilities must pay premium for Medicare Part A.  Individuals who had at least 30 quarters of coverage or were married to someone with at least 30 quarters of coverage may buy into Part A at a reduced monthly premium rate of $278 in 2023 (increase of $4 from 2022).  Certain uninsured aged individuals who have less than 30 quarters of coverage and certain individuals with disabilities who have exhausted other entitlement will pay the full premium of $506 a month in 2023 (up $7 from 2022).

The Medicare Part A inpatient hospital deductible that beneficiaries pay if admitted to the hospital is $1,600 in 2023 (increase of $44 from 2022).  The Part A inpatient hospital deductible covers beneficiaries’ share of costs for the first 60 days of Medicare-covered inpatient hospital care in a benefit period.  In 2023, beneficiaries must pay a coinsurance amount of $400 per day for the 61^st through 90^th day of a hospitalization (increase of $11 from 2022) in a benefit period and $800 per day for lifetime reserve days (increase of $22 from 2022).  For skilled nursing facilities, the daily coinsurance for days 21 through 100 of extended care services in a benefit period is $200.00 in 2023 (up $5.50 from 2022).

2023 Medicare Part B Premium and Deductible Amounts

Medicare Part B covers physician services, outpatient hospital services, certain home health services, durable medical equipment, and certain other medical and health services not covered by Medicare Part A.  General tax revenues, along with premiums paid by Medicare beneficiaries, fund the Part B program.

There is a special rule for Social Security recipients, called the “hold harmless rule,” that ensures that Social Security benefits will not decline from one year to the next because of an increase in the Medicare Part B premium.  Whether this rule comes into play in any year depends on the amount of Cost of Living Adjustment (COLA) and the Medicare Part B premium increase.  The hold harmless rule applies in 2023 for those people who had been paying the standard Part B premium, and their Medicare Part B premium increased but the Social Security COLA amount was not large enough to cover the increase.  Those who are subject to the 2023 hold harmless rule pay less than the $164.90 standard Part B premium.  All others pay the 2023 not held harmless premium, which is determined based on the Modified Adjusted Gross Income (MAGI) as reported on the individual’s 2021 tax return.

The standard monthly premium for Medicare Part B enrollees is $164.90 for 2023, a decrease of $5.20 from $170.10 in 2022.  In most years (unlike 2023), the Medicare Part B premium rises.  Medicare Part B enrollees will pay the standard $164.90 Part B premium amount in 2023 unless:

• You have Medicare and Medicaid, and Medicaid pays your premiums.  (Your state will pay the standard premium amount.)
• Your modified adjusted gross income as reported on your IRS tax return from 2 years ago is above a certain amount.  If so, you’ll pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA).  IRMAA is an extra charge added to your premium.
• You are protected by the "hold harmless" rule discussed above.

Since 2007, a beneficiary’s Part B monthly premium is based on his or her income.  These income-related monthly adjustment amounts affect less than 10 percent of people with Medicare Part B.  The 2023 Part B premiums based on MAGI from the 2021 tax return are shown in the following table:

Beneficiaries who file individual tax returns with income:	Beneficiaries who file joint tax returns with income:	2023 Part B premium not held harmless	Premium level
Less than or equal to $97,000	Less than or equal to $194,000	$164.90	Standard
Greater than $97,000 and less than or equal to $123,000	Greater than $194,000 and less than or equal to $246,000	$230.80	1.4 x standard
Greater than $123,000 and less than or equal to $153,000	Greater than $246,000 and less than or equal to $306,000	$329.70	2.0 x standard
Greater than $153,000 and less than or equal to $183,000	Greater than $306,000 and less than or equal to $366,000	$428.60	2.6 x standard
Greater than $183,000 and less than $500,000	Greater than $366,000 and less than $750,000	$527.50	3.2 x standard
Greater than or equal to $500,000	Greater than or equal to $750,000	$560.50	3.4 x standard

Medicare Part B has an annual deductible of $226 in 2023 (down $7 from 2022), then Medicare beneficiaries are responsible for 20% of the Medicare-approved amount for services.

2023 Medicare Part D Premiums

Since 2011, Medicare beneficiaries’ Part D premiums have been based on income.  In addition to any Part D plan premium, there is an income-related monthly adjustment amount (IRMAA) impacting less than 10% percent of people with Medicare Part D.  Part D premiums vary from plan to plan (note when Part D benefits are included in a Part C Medicare Advantage plan, there may not be any premium).  Roughly two-thirds of beneficiaries pay premiums directly to the plan, while the remaining beneficiaries have their premiums deducted from their Social Security benefit checks.  Regardless of how a beneficiary pays their Part D premium, the Part D income-related monthly adjustment amounts are deducted from Social Security benefit checks or paid directly to Medicare.  The 2023 Part D income-related monthly adjustment amounts for high-income beneficiaries are shown in the following table: 

Beneficiaries who file individual tax returns with income:	Beneficiaries who file joint tax returns with income:	2023 Part D base premium*	IRMAA
Less than or equal to $97,000	Less than or equal to $194,000	Plan premium	$0
Greater than $97,000 and less than or equal to $123,000	Greater than $194,000 and less than or equal to $246,000	Plan premium	$12.20
Greater than $123,000 and less than or equal to $153,000	Greater than $246,000 and less than or equal to $306,000	Plan premium	$31.50
Greater than $153,000 and less than or equal to $183,000	Greater than $306,000 and less than or equal to $366,000	Plan premium	$50.70
Greater than $183,000 and less than $500,000	Greater than $366,000 and less than $750,000	Plan premium	$70.00
Greater than or equal to $500,000	Greater than or equal to $750,000	Plan premium	$76.40

 * Hold harmless rule does not apply to Medicare Part D premiums for prescription drugs.

New for 2023 -- Immunosuppressive drug benefit

If you only have Medicare because of End Stage Renal Disease (ESRD), your Medicare coverage, including immunosuppressive drug coverage, ends 36 months after a successful kidney transplant. Medicare offers a benefit that helps you pay for your immunosuppressive drugs if you don't have certain types of other health coverage (like a group health plan, TRICARE, or Medicaid that covers immunosuppressive drugs).  This new benefit only covers your immunosuppressive drugs and no other items or services.  It isn’t a substitute for full health coverage.  You can sign up for this benefit anytime as long as you had Medicare because of ESRD at the time of your kidney transplant.  To sign up, call Social Security at 1-800-772-1213.  TTY users can call 1-800-325-0788.

Note:  You’ll pay a monthly premium of $97.10 (or higher based on your income) and $226 deductible for this benefit in 2023.  Once you've met the deductible, you'll pay 20% of the Medicare-approved amount for immunosuppressive drugs.  If you have limited income and resources, you may be able to get help from your state to pay for this benefit.

Until next time,

Andrew Herman