Medicare Part DCategory:
When I meet with prospective clients, I begin with a brief explanation of Medicare. Then move on to the hundreds of plans. Drugs are next. This is hard. Clients must lay down their cards; some hold a straight flush of costly medications.
The Inflation Reduction Act of 2022 is a long-awaited solution to improve Medicare drug plans and make Part D affordable for those on costly medications.
Inflation Reduction Act of 2022 Deals with Medicare Drug Changes
When Medicare Part D was first established, Medicare contracted with private plan sponsors to provide the prescription drug benefit. The private insurance company created the Part D Prescription Drug Plans (PDP), sold the PDPs, and managed the PDPs. Each company negotiated separately with the pharmaceutical companies the price of the medications and which medications would be included on the plan formularies–the list of authorized drugs.
The insurance companies had the leverage of their brand and how many customers they would bring to the pharmaceutical companies. They were also competing with the other insurance companies to get more medications at the lowest cost. The pharmaceutical companies, of course, were trying to maximize their revenues and profits.
Ideally, it was hoped that the competition and freedom of the market would keep prices low. However, patent laws create a temporary monopoly for pharmaceutical companies that develop these very effective and popular new drugs. The patent, and the consequent monopoly, benefit the nation and the world with the newest and best medications. Unfortunately, it is a substantial financial burden for those who need the medication.
The Inflation Reduction Act Creates Leverage for Medicare
When Part D was created in 2004, a law was established known as “non-interference.” Non-interference means that the Secretary of Health and Human Services (HHS) cannot negotiate drug pricing with pharmaceutical companies, pharmacies, and insurance companies. Instead, the prices would be determined exclusively between the insurance companies, pharmaceutical companies, and pharmacies competing amongst one another.
With the Inflation Reduction Act of 2022, Medicare changes the law. The Secretary of HHS is granted a narrow exception to the non-interference clause. The HHS Secretary can negotiate on behalf of the 84 million Medicare and 76 million Medicaid beneficiaries for the lowest prices for a very limited number of costly prescriptions. The category of medications is single-source brand-name drugs or biologics without generic or biosimilar competitors.
Inflation Reduction Act of 2022 Effects Medicare Change in 2026
The Drug Price Negotiation Program begins in 2026 and is limited to 10 Part D drugs. Another 15 Part D drugs will be added in 2027, 15 Part D in 20228, and 20 Part in 2029. The HHS Secretary will select the drugs from among the 50 highest total cost Part D medications.
The timeline for the negotiation process will span roughly two years. For those companies that do not comply, there is an excise tax. The tax penalty starts at 65% of the product sales in the U.S. and increases by 10% every quarter to a maximum of 95%. The other option is that company can remove all its medications from the Medicare and Medicaid market.
Is the CBO Accurate, Reliable, & Trustworthy?
The Congressional Budget Office (CBO) claims HHS Secretaries’ ability to negotiate prices with Part D producers will significantly reduce what Medicare spends over the next ten years. The CBO also claims that reducing the revenue to pharmaceutical companies will have little effect upon developing new and better drugs. These are all projections and opinions to support the policy change. There is no evidence.
Drug Manufacturers Are Penalized for Inflation
The Inflation Reduction Act of 2002 adds another Medicare change. The Act requires drug manufacturers to pay a rebate to Medicare if prices for single-source drugs covered under Medicare Part B and nearly all covered frugs under part D increase faster than the rate of inflation reflected by the Consumer Price Index (CPI). The rebate dollars will be deposited in the Medicare Supplementary Medical Insurance (SMI) trust fund.
Cap Out-of-Pocket Part D Spending
Medicare Part D currently provides catastrophic coverage for high out-of-pocket drug costs. Still, there is no limit on the total amount beneficiaries pay out of pocket each year. Under the current design, Part D enrollees qualify for catastrophic coverage when the amount that they pay out of pocket plus the value of the manufacturer discount on the price of brand-name drugs in the coverage gap phase exceeds a certain threshold amount. Enrollees with drug costs high enough to exceed the catastrophic threshold must pay 5% of their total drug costs above the threshold until the end of the year. This can be huge.
The Inflation Reduction Act of 2022 amends Medicare’s design of Part D. For 2024, the law eliminates the 5% coinsurance requirement above the catastrophic coverage threshold, effectively capping out-of-pocket costs at approximately $3,250 that year.
The legislation adds a hard cap on out-of-pocket spending of $2,000 per person in 2025. How this will be funded, other than with savings, is still being determined.
Inflation Reduction Act of 2022 Puts Medicare Insulin at $35
Insulin is probably the most common high-dollar medication that burdens many Medicare beneficiaries. Most plans relieve several insulin products, beginning with the Trump Administration and now Biden.
Currently, Medicare beneficiaries can choose to enroll in a Part D plan participating in an Innovation Center model in which enhanced drug plans cover insulin products at a monthly copayment of $35 in the deductible, initial coverage, and coverage gap phases of the Part D benefit.
Participating plans do not have to cover all insulin products at the $35 monthly copayment amount, just one of each dosage form and insulin type (rapid-acting, short-acting, intermediate-acting, and long-acting).
While Medicare is incredible health insurance, Part D prescription drug plans are the weakness because of the light coverage for higher-end medication. The Inflation Reduction Act of 2022 helps Medicare better service citizens with more reasonably priced medications.
We can ensure you have the plan that best covers your prescription drug needs at the lowest possible cost.
Call 402-614-3389 to speak with an experienced and licensed agent and insurance professional.
Many people have heard of the Medicare Donut Hole, but even those on Medicare are not familiar with what the donut hole really means unless they fall into it.
When you are in the Medicare Donut Hole, you know it and quickly learn what it means.
Clients call me monthly asking, “What’s going on? My medication jumped from $45 to $145!” I say, “Oh, you’re probably in the Medicare Gap, or the more popular name is the ‘donut hole.”’ They ask, “What’s that?”
Even clients I have warned ahead of time usually still call with distressed and perplexed voices. People don’t really begin to grasp what’s happening until it happens.
Medicare Donut Hole Explained
How to explain the Medicare Donut Hole? There is nothing logical about the Medicare Donut Hole (or Medicare Gap). The government actuaries devised this idea to deal with many Medicare beneficiaries who are on many extremely expensive medications.
Think about it this way: We all pay for auto insurance. Most of us do not get into accidents or kill anyone, thankfully. Over a long driving career, there may be some fender benders, but nothing major.
So we complain a little, but we pay the insurance premiums. It’s the price of doing business. We understand that more people need to pay in than people take out for accidents and injuries for insurance to work. Medicare Part D prescription drug insurance is similar. We need more people paying in than taking out.
The Problem Of Expensive Prescriptions
When we were working, our employers and we paid a lot of health insurance premiums, including medication copays. The age group for employer plans is 18-64. Not many people were on Eliquis, Toujeo, Xarelto, Jardiance, Ventolin Inhalers, etc. However, when it comes to Medicare, you have people ages 65-100, and the percentage of persons on expensive medications is enormous.
If the cost and risk were evenly distributed among all participants without distinction, Medicare Part D prescription drug plans would be significantly more expensive — so expensive that those who aren’t on medications or very few medications would never buy a Medicare Part D plan.
Remember, you need more people paying into the insurance plan than taking out. The magical actuaries at Medicare came up with an idea. Voila, the Medicare Donut Hole!
4 Phases To the Medicare Part D Plans
The Medicare Part D prescription drug program is broken down into four phases. The first phase is the deductible. The deductible for 2023 will be $505. The purpose of any deductible is to ensure that people do not charge recurring and minor costs to the insurance plan. The consumer needs to foot the bill for those low-cost expenditures. All insurance policies have some deductible built into the policy. Otherwise, premiums would be astronomical.
Phase 1: Deductible
In the case of Part D plans, the deductible is usually only for the more expensive Tier 3 medications. The plan entirely or mostly covers minor and inexpensive medications.
Phase 2: Initial Stage
The second phase is the initial stage. The Medicare initial stage is how insurance generally feels to the consumer. There is a claim, and the insurance pays most of the claim. The insured pays a fourth or a fifth of the actual cost.
Most people on Medicare never get out of the Medicare initial phase. They may even be on many medications, but their cost is insufficient to drive them into the Gap.
Phase 3: The Gap / Medicare Donut Hole
The third phase is the Medicare Gap (or Medicare Donut Hole). You cross this threshold when you and the plan have paid at least $4,660 in the insurance company’s cost of the medications.
You’ve paid about a fourth of the cost out of your pocket. The insurance companies paid the rest. You have now thoroughly and completely crossed over into the Medicare Gap (or Medicare Donut Hole).
In the Gap, pharmaceutical companies discount the medication cost by 75%. You pay 25% of the actual cost. The reasoning is that now the persons who most benefit directly from the medications should bear the burden of the cost. Again, if it were evenly split among participants, those with no or few medications would opt out of Part D plans and significantly reduce the premium paid into the pool.
Phase 4: Catastrophic
The final phase is catastrophic. Like it sounds, the costs are catastrophic for most people by this point. You have paid $7,400 out of your pocket in actual or discounted costs. This amount is based on the actual costs of the medications. You need to pay the $7,400 out of your pocket to descend to the next level.
This phase is probably called catastrophic because you have paid out a catastrophic amount of money for medications, which is catastrophic for your budget.
In this stage, instead of paying the actual cost of the medications, the insurance company and Medicare step back in. Medicare significantly subsidizes the cost. Beneficiaries pay copays of $4.15, $10.35, or 5%, whichever is higher. The cost and tier determine the copay.
Then, the whole process starts over again on Jan. 1 each year.
Changes to the Medicare Donut Hole In 2024
Because of recent legislation in Congress, this entire system may be significantly altered starting in 2024. Hopefully, for the good, but as it stands, this is what and how the Medicare “Donut Hole” works.
January begins a new calendar year for Medicare. What does that mean for your Medicare drug deductibles in 2023?
For most Medicare members with a Medicare Part D prescription drug plan, you have a deductible. The Medicare drug deductible for 2023 is currently $505. The Part D drug deductible for 2022 was $480, which means a 5% increase. The deductible is the amount you initially pay out of your pocket before the insurance plan begins paying for the prescriptions. Deductibles are vital because they keep the overall cost of medications low. Deductibles also prevent members from overusing Part D drug plans for trivial or unnecessary purposes.
2023 Medicare Drug Deductible Shock!
I mention the Medicare drug deductible for 2023 because I get distressed phone calls at the beginning of the year. Clients go to the pharmacy in January, February, and March and are shocked. They have a huge unexpected bill. I hear cries of ‘I can’t afford $500 every month for their medications!’
I remind clients that they are in the deductible phase of their Medicare drug plan. Once they meet their drug deductible, the medication cost will decrease significantly to around $45 per month per medication.
Since it is an entire year from the last time clients paid their drug deductible, it is understandable they forget.
For those paying the deductible all at once in January and for the first time, the deductible experience will be a new and eye-opening surprise.
Plan For the Unexpected
I don’t know about you, but $505 is a lot of money to pay out all of a sudden, especially if you were not planning on it. I’m usually all tapped out by January. My trophy wife, high-maintenance step-children, and grandchildren require a lot of maintenance around Christmas time.
Once you have met your Medicare Part D deductible for the year, your Tier 3, 4, & 5 medications will be the amount listed in your handbook during the initial phase before the Gap. Please, consult my other blogs about the GAP / Donut Hole.
Most people, however, will not fall into the Gap and will simply pay minimal copays for the remainder of the year. It is the deductible that is the big obstacle.
Clients ask, ‘Are there other Part D plans without a deductible?’ There are a few, but the monthly premiums are much higher, like $100 per month, and the copays are generally higher too.
Lowest Total Annual Medicare Drug Cost
When I run clients’ drugs through the Medicare Part D medication calculator, I look primarily at the total annual cost. The winning drug plan is the plan with the lowest total annual cost and with at least a 3 Star Medicare rating.
The calculator combines the monthly premium, deductibles, copays, and gap–if applicable–and spits out a total number for the year. That is the plan you want to use.
Look For Stars
As for the Medicare star rating, you want to have at least three stars. More stars are better. There is no point in having the cheapest Medicare drug plan if you never get your medications or the insurance company is so painful to deal with you need additional drugs to handle them.
Most Have A Medicare Drug Deductible
January to March is when Part D plans remind most people they have a deductible. Don’t be upset. There is nothing wrong. You must meet the Medicare drug deductible to get to the lower cost for your medications for the remainder of 2023.
When people arrive at the doorstep of Medicare at age 65, they are confronted with the daunting task of picking a Medicare plan. Most people find picking Medicare plan overwhelming and confusing.
100’s of Supplements to Pick From
Insurance companies offer hundreds of different Medicare supplements, Medicare Advantage plans, and Medicare Part D prescription drug plans. Picking Medicare plan means choosing between Medicare supplements and a Part D prescription drug plan OR Medicare Advantage/Part C. Next picking Medicare plan means choosing the plan type. Medigap plans range from plan A through the alphabet to plan N, which doesn’t include a Part D drug plan. The drug plans can be a little simpler because you can use the Medicare tool to narrow down the selection. The Medicare calculator bases the plan selection upon the prescriptions you enter into the system. The calculator picks the Medicare Part D plan that will cost the least in total costs for you. On the other side, Medicare Advantage plans consist of a wide variety of co-pays, co-insurance, deductibles, and maximum out-of-pocket costs and amounts that may or may not include a Part D plan.
Foreign Language of Medicare
Medicare itself is like a foreign language of Part A, Part B, and Part D with rules around enrollment that includes penalties when you do not comply. The Medicare.gov website is meant to be helpful, but the shear amount of information, jargon, legalese makes it a barrier to entry rather than a door. Even the Medicare handbook is hundreds of pages. Its size makes the evaluation of information almost impossible.
The Pain of Picking Medicare Plan
As a consequence, picking a Medicare plan is a frustrating and painful process for people. That is why I take people through a 3-step process. 1.) There is a brief, foundational explanation of Medicare and how it works. 2.) Look at ALL of the plans, but in an organized and ordered fashion. The first step helps you evaluate the plans. I share the story behind each company from my fifteen years of insurance experience because each company has a history in the market. 3.) I find out about you. Everyone is unique. Some people are risk takers. Others are not. Some have health concerns that are foremost of mind. Others do not have any.
Logical Process
The logic of the process enables people to narrow down choices and make the best one for them. I ask questions as we go along. Test and probe. Explain aspects of the plans as we go through each. Constantly test for understanding. So the process of picking a Medicare plan becomes clearer as we move through it. I generally meet with people twice. The first time is usually months before they can do anything. There is no pressure to make a decision or ‘buy right now.’ Clients have time to think, collect more information, verify what they’ve learned, talk with confidants. The next time we get together is to review with updated information. That is the time for picking a Medicare plan. By then you are comfortable and confident with your decision because your decision is well informed. It is logical. The decision is made over time without pressure. You know what you are doing when you pick your Medicare plan.
If you would like to go through this process, there is not cost or obligation. Call 402-614-3389 to find out more.
Medicare usually makes some changes every year. Medicare changes Part D without exception. Medicare and the insurance companies make adjustments based upon drug costs and contracts with pharmaceutical companies. Medicare is also gradually eliminating the dreaded gap in Part D coverage, better known as the “Donut Hole.”
Medicare Changes Part D Deductible
The change that gets the most recognition this year is the Medicare Part D changes deductible. Medicare changes Part D deductible from $350 in 2016 to $400 in 2017. That is a 14% increase to the deductible alone, which is a constant reminder to review your Medicare Part D plan each year with your agent.
Part D Shell Game
A $400 deductible is sizeable. Most of the Part D plans have the deductible, but some do not. The way those plans are able to eliminate the deductible is by spreading the deductible out 
through the various co-pays on your medications. The other way is to apply the deductible only to higher Tier, more expensive drugs, e.g., Tier 3-5 medication. The Part D plans are a bit of a shell game shifting costs from this drug to another. It is important to not be distracted by the various co-pays. Medicare.gov has a wonderful medication calculator that will compared all of the Part D plans in your area side-by-side. You want to use that tool and focus on the total number that you will spend. Too often, Medicare beneficiaries will focus on one co-pay or an initial deductible. The bottom line is the total amount coming out of your pocket.
Medicare.gov Medication Calculator
That being said, we all have limited budgets. A big deductible may be too big for your wallet. It may make sense to use a Part D plan without a deductible to even out your costs over the year. If you are going on a Part D plan more than half way through the year because you just turned 65, it may make sense to pick a plan with no deductible. Why pay the big deductible and turn around and pay it again in January? That is why it is important that your agent go through your list of medications, talk about the costs, and figure out the best plan for you. An experienced agent should be able to effectively use the Medicare prescription drug calculator to show you how your medication costs will play out in the coming year. Also remember to check whether you qualify for the EXTRA HELP Program.
