Soon, mailboxes across America will be filled with the latest Medicare Plan offerings, and avoiding the next Joe Namath Medicare Advantage commercial might feel like playing Whack-a-Mole at the local carnival.
Amidst the perennial buzz, is there anything genuinely new happening, or are companies just tweaking their plans to entice new enrollees?
The big news this year is the end of the donut hole. No longer will those with expensive prescriptions see their copays shoot up during the year as they enter the coverage gap.
Starting in 2025, the maximum annual out-of-pocket prescription cost will be capped at $2,000. Additionally, plan beneficiaries will have the option to pay their prescription costs in 12 equal monthly payments.
While this is significant news, is it truly the "manna from heaven" that the government has proclaimed?
For those with expensive prescriptions, this change is beneficial but comes with offsetting costs. Some have described it as a reduction of the maximum out-of-pocket cost for prescriptions from $8,000 to $2,000, but that is not entirely accurate. The $8,000 figure includes payments not directly paid by enrollees.
For people hitting the $8,000 threshold in 2024, they'll contribute roughly between $3,300 and $3,800 toward the cap, then pay $0 for covered Part D drugs for the rest of the year. In 2025, the savings for those with several expensive prescriptions will be about $1,500, not $6,000.
In my experience, most clients do not reach the donut hole, and for those who do, only a few reach the $8,000 threshold. Many already have no donut hole because they qualify for a subsidy, especially in CT, where the reportable income threshold is high and there is no asset limitation.
While the drop in out-of-pocket costs for some can be meaningful, it comes at a cost as insurance companies are unlikely to absorb the additional expenses from the lower out-of-pocket maximum and the cost of financing the prescription costs over the year.
We will likely see higher co-pays as drugs are moved to higher tiers and increased premiums. Even those benefiting from the lower out-of-pocket maximum will see some of that savings offset by higher plan premiums.
For those who haven’t hit the donut hole, either due to a healthy lifestyle or the luck of a healthy gene pool, they will see their costs increase due to higher premiums and higher copays.
While people with expensive prescriptions will appreciate the reduction in the out-of-pocket maximum, their benefit may be offset by premium increases on Part D plans and benefit reductions on Medicare Advantage plans.
Medicare Advantage plans will face additional stress as the government's payments to insurance companies will increase by 3.7% in 2025, while healthcare costs rise around 8%. To keep $0 premium plans, insurers might need to cut some supplemental benefits like dental, vision, hearing aids, over-the-counter benefits, and fitness benefits and perhaps raise copay's and deductibles under the health benefits.
The impact of the 2025 rule changes on Medicare recipients’ savings will vary based on individual circumstances. Some beneficiaries may experience reduced out-of-pocket costs due to the elimination of the donut hole, while others may face higher premiums and copays. It’s essential to review specific plan details and consider how these changes will affect overall costs. For personalized advice, consulting with a Medicare specialist can provide more accurate insights.