Medicare Part D Changes: Considerations for 2025 and Beyond

The Inflation Reduction Act of 2022 (IRA) is gradually implementing some of the most signficant reforms to Medicare in a generation.

Medicare Reform Timeline and Overview

The Inflation Reduction Act (IRA) made several cost-reduction reforms for enrollees in Medicare Part D prescription coverage:

1. In 2023, the monthly cost-sharing for insulin was capped at $35 per month. In addition, adult vaccines covered under Part D are covered with no cost sharing.
2. In 2024, the IRA set an out-of-pocket cap of $8,000 for Medicare Part D drugs.
3. In 2025, that out-of-pocket cap is reduced to $2,000, indexed annually. (This cap does not apply to Part B drugs).
4. In 2026, the Department of Health and Human Services (HHS) will establish a program to negotiate certain prescription drug prices with manufacturers for individuals covered by Medicare.

Although these changes are a win for Medicare participants, there are some significant implications for employer sponsored plans:

• The IRA does not include comparable prescription drug cost reductions for private plans. The reduced cost for Medicare enrollees could result in increased costs for employer plans and participants as price increases are often shifted to private plans to make up for lost revenue.
• The IRA changes may make it difficult for some employer-sponsored health plans to demonstrate that their prescription drug benefit is creditable.
• Coverage is creditable only “if the actuarial value of the coverage equals or exceeds the actuarial value of defined standard prescription drug coverage under Part D.” These improvements to Medicare Part D, especially the $2,000 out-of-pocket cap, increase the actuarial value of Medicare Part D plans, thereby setting a higher standard for employer-sponsored prescription drug coverage to be creditable.

The Centers for Medicare and Medicaid Services (CMS) provided temporary relief for some employer sponsored plans for calendar year 2025 when it released the Final CY 2025 Part D Redesign Program Instructions by noting, “…CMS will continue to permit use of the Creditable Coverage Simplified Determination Methodology, without modification to the existing parameters, for CY 2025 for group health plan sponsors not applying for the RDS.” They went on to further state “…we will re-evaluate the continued use of the existing simplified determination methodology, or establish a revised one, for CY 2026 in future guidance.” However, plans that have integrated medical and prescription drug coverage, are only creditable under the Simplified Determination Method if the annual deductible is not greater than $250.

Action Items and Next Steps for Employers

Given the limitations of the simplified method, employers should work with their medical plan carriers to determine if their prescription drug coverage will be considered creditable for 2025. We have confirmed that the major carriers will have creditable coverage tools available no later than mid-September 2024. In the meantime, employers should review their prescription drug offerings and long-term strategy related to Medicare eligible individuals. Some considerations include:

1. For employers receiving the retiree-drug subsidy, one of the several requirements is that the employer must submit an actuarial attestation that the actuarial value of the plan’s retiree prescription drug coverage is at least equal to the actual value of the defined standard prescription drug coverage under Part D. Given the $2,000 out-of-pocket cap for Medicare Part D plans in 2025, employers should work with their actuaries sooner vs later to ensure their plans remain creditable in 2025 or risk losing the subsidy.
2. Employer Group Waiver Plan (EGWP) plan sponsors are likely to see decreased reimbursement from federal subsidies and the federal reinsurance for high claims. Decreased reimbursements combined with increased costs may make these offerings less feasible for employers.
3. Employers that offer prescription drug coverage must disclose to all Medicare Part D eligible individuals and to CMS whether the prescription drug coverage is creditable. One of the purposes of the disclosure requirement is to inform plan participants about the higher Part D premium for not enrolling in Part D when first eligible unless they have creditable coverage from another source (such as an employer’s plan).

• This is particularly noteworthy for groups that only offer a HDHP, which might not be able to meet the definition of creditable coverage for 2025.
• If coverage is no longer creditable, to avoid a Part D premium penalty in the future, employees will need to enroll in either Medicare Part A or B in order to enroll in a Part D plan within 63 days of the loss of the creditable coverage. The current penalty is 1% of the “national base beneficiary premium” ($34.70 in 2024) for each full month an individual does not have creditable coverage.
• If employees drop their employer-sponsored coverage in favor of enrolling only in Medicare, the employee will need to enroll in both Medicare Parts A & B along with either Parts D (and a Medicare Supplement, if desired) or a Medicare Advantage plan.
• However, even if coverage is not creditable, employees may still need to maintain their employer sponsored coverage if they cover dependents who are not Medicare-eligible.

The IRA introduced the first major changes to Medicare Part D since its inception in the Medicare Modernization Act. These changes are going to make Medicare Part D plans much more beneficial to Medicare participants. However, the changes will also have a significant impact on employer sponsored health plans and the lives of those covered under their plans. Employers should begin to review their health plans to determine what changes (if any) would be needed for their plans to remain creditable in 2025. They can then decide if they want to implement the changes or notify participants that the plan is not creditable.

Looking for a crash course in how Medicare works? Take a look at our guide for Understanding Medicare Basics.