When I think about IRAs, I think about Individual Retirement Accounts. However, when it comes to Medicare, the IRA means something very different. The IRA regarding Medicare is the Inflation Reduction Act, President Biden’s prescription drug law, signed on August 16, 2022. This new law will provide financial help to millions of people participating in Medicare by lowering the cost of drugs.
To understand the changes, we need to discuss the current Medicare prescription coverage standards. Each plan is set differently. Prescription plans can have or do not have a deductible, and those deductibles may start with the first tier or any other tier. Okay, you’re probably thinking about what a tier is. A formulary is the list of drugs each plan covers. Each drug is divided then into tiers 1-5. Tier one is preferred generics, tier two is generic drugs, tier three is preferred brand name drugs, tier four is non-preferred drugs, and finally, tier five is specialty drugs. As you probably guessed, if your med falls into tier one, it would be less expensive than tier three. After the deductible is satisfied, if the plan has one, we move into the initial coverage stage – when you pay a co-pay or co-insurance for the prescription. Once your total costs reach $5,030 in 2024, you will fall into the gap. This number is what you pay personally combined with what the plan pays. When you are in the gap, you pay 25% of the costs of your drugs until your total out-of-pocket reaches $8,000 again, combined with what you and the plan pay. Once you have passed the $8,000 out-of-pocket, you pay $0, and you will be in the catastrophic coverage stage through the end of the year. The following year, the plan resets, and we begin again.
The first rollout happened in 2023. The biggest change here was the cap on insulin to $35 per month. This phase also eliminated the cost share for adult vaccines. It added inflationary rebates to Medicare if the manufacturer raised the cost of drugs higher than the inflation rate.
The second phase in 2024 removed the catastrophic coverage costs to the members. Once they made it through the donut hole on the other side, there was no cost for the prescriptions for the rest of the year. In prior years, you paid a co-pay to receive meds after the donut hole. It expanded the low-income subsidy and created a premium increase cap of 6%.
The third phase of the IRA will affect everyone on Medicare and will roll out in January 2025. Plans should be shopped in October through Dec 7th for the new year’s start. This IRA change caps the drug costs to $2,000/year for the beneficiary. The donut hole is finally removed from Medicare, which is when people fall into the coverage gap – there won’t be one. Once your drug cost reaches $2,000, your meds will not cost you anything for the balance of the year. That can still be a big number for many beneficiaries receiving Medicare, so they have added a Medicare prescription payment plan option to help spread the costs throughout the year, which will be managed by the carriers. Additionally, there are new manufacturer discount programs.
It doesn’t end there, even though it is a significant overhaul of the Medicare prescription plan costs. From 2026 through 2028, the Centers for Medicare and Medicaid will begin price negotiations for some drugs.
If you are on Medicare, you should have received an annual notice of changes (ANOC) in September to review your current benefits and see what’s changing for next year. This comes in the mail and doesn’t look very important, so it is often missed. Don’t stress if you’ve missed it – be sure to contact your insurance agent beginning October 1st, as they will have the plan details and can discuss the plans for 2025.
These changes will affect The standalone prescription plans and the Medicare Advantage plans with prescription coverage. Chances are, if you’re on Medicare, you have one or the other unless you have prescription coverage through a retiree program. All carriers across the board will be affected. Some carriers have chosen not to offer prescription coverage, have reduced their offerings; or decided to pull out of specific areas all together. This is the year to connect with your agent to review your plan to make sure it’s exactly what your health and budget deserve.
We’ve been planning for the 2025 Annual Enrollment Period for a while in preparation for all the changes. After reading this, if you still have questions, please be sure to contact us at Bridgeman Strategic Concepts. We look forward to helping you with your Medicare needs.
