Now that we are into the fourth quarter of the year (October, November, and December), we recommend you take time to review your health insurance plans.
If you are still working full-time, we encourage you to review the health insurance plans available from your employer to make sure you have selected the best health insurance option for you and your immediate family. If you are 65 or older, it is time for you to review your Medicare Advantage Plan and your Part D Prescription Drug plan.
Remember that some Medicare Supplement Insurance plans may also be changed based on the Birthday Rule.1 The rule applies to just eight states, each with specific guidance, so check your individual plans for your options. In California, the window for changes starts 30 days before your birthday and extends 60 days after your individual birthday, giving you basically 90 days to switch plans.
In the blog this month, we will cover some things for you to consider and review for your 2025 health insurance plan:
- Medicare Annual Election Period
- Impact of the Inflation Reduction Act on Medicare Part D
- The Donut Hole Goes Away in 2025
- Preferred vs. Standard vs. Out of Network Pharmacies
- Company Health Insurance Plans (If you are still working)
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Medicare Annual Election Period
For people who are 65 years and older, October 15 to December 7 is the Annual Election Period (or Open Enrollment Period) for Medicare.2 During this period, you have the opportunity to review and possibly change your health insurance plan.
Source: Medicare.gov
If you are currently on Medicare, you likely received an email from the Federal Government regarding open enrollment. The specific features of Medicare plans often change yearly, so we recommend reviewing your health insurance plan for the next year.
Impact of the Inflation Reduction Act on Medicare Part D
The Inflation Reduction Act of 2022 will cause several changes to take effect in 2025. Here are a few of the key changes:
- People with Medicare Part D won't pay more than $2,000 out-of-pocket for prescription drugs.
- People using expensive medications can set up a payment plan to pay out-of-pocket Part D costs, making payments over the course of the calendar year rather than paying it all upfront.
- The Manufacturer Discount Program in Medicare Part D will replace the Medicare Coverage Gap Discount Program. The new Manufacturer Discount Program will require manufacturer discounts for applicable drugs in the initial and catastrophic coverage phases.
The Donut Hole Goes Away in 2025
Because of the Inflation Reduction Act (IRA) changes, the Donut Hole for drug costs will go away in 2025. What is it? The donut hole for prescription drug coverage is the third of four phases of Medicare Part D coverage after the deductible and initial coverage phases but before catastrophic coverage. In the donut hole, you pay 25% of the cost of your drugs out of pocket. Let’s explain this in more detail.
Medicare Part D coverage takes place in four stages or phases according to how much you and your plan have spent on your covered drugs over the course of a year. These phases are Deductible, Initial Coverage, Gap Coverage (or donut hole), and Catastrophic Coverage. Here are the four phases in more detail.
4 Phases of Medicare Part D Coverage
Phase 1: Deductible
At the start of the year, you must pay for your drugs out of pocket until you reach the plan's annual deductible, if it has one. The maximum you could pay in 2024 is $545. This phase lasts until you've met the plan's deductible.
Phase 2: Initial Coverage
After you've met your plan's annual deductible, the plan starts to pay for some or all the cost of your covered drugs. You pay copays and/or coinsurance according to your plan's tiered list of which drugs the plan covers and how much. This phase lasts until you and your plan spend a combined total of $5,030 in 2024.
Phase 3: Gap Coverage (Donut Hole)
Your plan's copays and/or coinsurance no longer apply in the donut hole. Instead, you pay up to 25% of the cost of your covered drugs. For many drugs on lower tiers, this 25% will be more expensive than the copays or coinsurance you paid before. This phase lasts until you've spent $8,000 in 2024. So a person might have to pay $742.50 (25%) for drug costs between $5,030 and $8,000, which will change in 2025.
Phase 4: Catastrophic Coverage
This phase occurs when the total cost of your prescription drugs is over $8,000 in the year. In 2024, when you reach catastrophic coverage, you're done paying out of pocket for the year.
Starting in 2025, there will be no Medicare donut hole. You will pay your plan's deductible, copays, and/or coinsurance until you reach the new Medicare Part D out-of-pocket spending gap ($2,000 in 2025), at which point you will be done paying Part D copays and coinsurance for the year.
Preferred vs. Standard vs. Out of Network Pharmacies
It is recommended that people use preferred in-network pharmacies in their Part D plan to get lower-priced drugs. Usually, a pharmacy considered standard in-network is more expensive. If an out-of-network pharmacy is used, expect to pay the full cost for the drugs out of pocket. So do your best to use preferred in-network pharmacies.
Company Health Insurance Plans (If you are still working)
If you are still working full-time and have health insurance from your employer, it is also very important to review the health insurance plans offered by your employer to see if there are any changes for the coming year. It is very possible that there will be changes to the plans available from your employer, and it is important that you pick the plan with the features and cost that are best for your situation.
Conclusion
There are many changes to the laws and regulations for health care plans for 2025. Whether you are 65 and older and on Medicare, or you have a health insurance plan from your employer, we believe it is very important for you to take the time to talk with experienced professionals in this field to make sure you select the health insurance plan that is best for you. Making an incorrect choice could prevent you from getting the care you need and result in you paying more than was necessary.
We help our clients make smart decisions and align their money with their goals so they can enjoy the journey..If you have any questions about these items, please call our Wealth Managers or speak to a Medicare Specialist or your company's Human Resources professional.
Financial Journey Partners - Partners in Your Financial Journey®
Our Financial Journey Partners office is based in San Jose, California. We have clients that live in many states across the country. If you have questions about your investments or financial situation, call us to schedule time to talk about your specific situation.
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References:
1 CoverRight – Medicare 101: Demystifying the Birthday Rule
2 Centers for Medicare and Medicaid Services