Medicare Part D Changes Raise Questions for Working Clients

Susan, a 64-year-old administrative assistant with diabetes, has been working for the same company for more than 20 years. She's been managing her condition with insulin provided through her employer's health plan.

As Susan approaches retirement, she's been considering her Medicare options.

Her employer had assured her that their health plan was creditable, meaning it offered prescription drug coverage at least as good as Medicare Part D.

With this assurance, Susan planned to delay enrolling in Medicare Part D. However, with the changes coming to Medicare Part D in 2025, Susan's employer recently informed her that their plan might no longer be considered creditable.

This news came as a surprise.

Susan's question: Could sticking with her employer's coverage might really cause Medicare Part D drug plan enrollment problems?

The short answer: Yes. If Susan had delayed enrolling in Medicare Part D without this updated information, she could have faced lifetime penalties when she eventually signed up, significantly increasing her long-term health care costs.

Prescription Drug Costs: What Is Changing?

Susan's situation is becoming more common due to the significant changes introduced by the Inflation Reduction Act, or IRA.

The IRA aims to make prescription drug coverage more affordable for Medicare beneficiaries with key provisions such as a $35 copay cap on insulin and the establishment of a $2,000 maximum out-of-pocket drug cost, effective in 2025.

These changes not only affect Medicare recipients, but also have important implications for employer-sponsored health plans.

Employer-sponsored health plans are considered "creditable" when their prescription drug coverage is expected to pay, on average, at least as much as Medicare Part D.

This determination is based on actuarial assessments comparing the benefits of the employer plan to those of Medicare Part D.

Employers are required to inform their employees if their health plan's drug coverage is deemed creditable. This information is crucial for Medicare-eligible employees because it influences their decision on whether to enroll in Medicare Part D.

If an employee's plan is non-creditable and the worker is delay enrolling in Medicare Part D, they could face lifetime penalties.

With the enhancements introduced by the IRA, Medicare Part D plans are set to become more competitive.

The improved benefits and reduced out-of-pocket costs could lead to more employer-sponsored plans failing to meet the criteria for creditable coverage in 2025.

This presents a potential challenge for both employers and their Medicare-eligible employees.

Fortunately, Susan was able to take action in time.

She consulted with a benefits advisor to explore her options, including enrolling in a Medicare Part D plan that would cover her insulin with the new $35 copay cap.

This change provided her with peace of mind, knowing that her out-of-pocket expenses would be capped at $2,000 annually starting in 2025.

Caution For Employers & Employees

Employers should reassess whether their health plans will remain creditable in light of the new Part D enhancements.

This process involves reviewing actuarial assessments to ensure that their coverage continues to meet the standards set by Medicare.

If a plan is found to be non-creditable, employers are required to notify their Medicare-eligible employees.

For Medicare-eligible employees like Susan, enrolling in a Medicare Part D plan is essential to avoid future penalties.

The $2,000 out-of-pocket maximum for Part D coverage in 2025 may offer significant savings compared to remaining in a non-creditable employer plan.

By staying informed and encouraging employer clients to take necessary steps, you can help your employer clients protect their employees from potential penalties, and employees can ensure they continue to receive affordable, comprehensive prescription drug coverage.

Credit: CMS

Bethany Cissell is director of business development and a Medicare expert at Allsup, a national disability representation provider based in Belleville, Illinois.