A Simpler Medicare Part D Is Coming. Here’s How It Could Save You Money

Ivanna Hampton: Welcome to Investing Insights. I’m your host, Ivanna Hampton. A once-in-a-generation revamp is coming to Medicare. Seniors and caregivers may want to review current coverage and shop around for next year. Reforms from the Inflation Reduction Act will lower some costs. Meanwhile, there are some concerns health plan options could slightly shrink. Mark Miller is a Morningstar contributor and the RetirementRevised newsletter publisher. He’s written about what you need to know about Medicare open enrollment for 2025. Here’s our conversation.

Welcome back to the podcast, Mark.

Mark Miller: Thank you. Great to be here.

Traditional Medicare vs. Medicare Advantage

Hampton: Well, let’s start with a quick explainer about the similarities and differences of traditional Medicare and Medicare Advantage.

Miller: Sure. Well, when you first sign up for Medicare, you’re going to go down one of these two pathways. Either you’re going to sign up for the traditional Medicare program, which is basically you’re interacting directly with the government, with Medicare, or Medicare Advantage, which is a commercially offered, they come from insurance companies. They are kind of more comprehensive all-in-one ways to have your Medicare coverage. And they are typically managed-care plans, meaning like a PPO or an HMO. They offer kind of a convenience to one-stop shopping. Some people appreciate other aspects of it, such as extra benefits. In some cases, the plans come without an extra premium for prescription drugs. And you don’t need a Medigap supplemental policy when you’re in Medicare Advantage. And that’s another cost that you typically would have in traditional Medicare, but not in Medicare Advantage. It’s really two fundamentally different ways of getting your coverage. And each comes with some pluses and minuses.

Why Seniors Shouldn’t Just Roll Over Their Plans in 2025

Hampton: And Medicare open enrollment runs now through Dec. 7. Why should seniors who typically roll over their plans from year to year not do that for 2025?

Miller: Well, I’m always nagging people to recheck their coverage during the annual enrollment period, which, as you mentioned, is ongoing now and ends on Dec. 7. Every year, I’m haranguing people to do it because coverage terms under standalone Part D drug plans or in Medicare Advantage can change. If you’re in traditional Medicare with Part A, Part B, and Medigap, you don’t need to recheck that. But it’s really these privately offered plans for prescription drugs and or Medicare Advantage that always need a check. But this year, more so than ever, and I should say not enough people do it, only about a third of Medicare enrollees actually do take the time. It’s understandable. It’s a complex, kind of a bit of a pain to do, but it can be really important to do both for containing your costs and making sure you’re going to get the best-fit coverage and healthcare in the year ahead.

This year, it’s especially important because some really profound changes are occurring in the prescription drug program, consequent to the passage of the Inflation Reduction Act in 2022, contained a bunch of improvements to drug coverage that had been phased in over the last couple of years. And next year is the year when that’s all culminating. The biggest change is that this kind of former, very-complicated different tiers of cost-sharing that would escalate as if your costs get high has all been swept away and replaced with a much simpler structure. That’s really good news. And the big headline is that nobody enrolled in Part D will pay more than $2,000 out of pocket, aside from premiums for their costs. People who run into really high drug costs for complex, serious illnesses, previous to this new cap, had been accustomed to paying thousands and thousands of dollars for medications. And this represents a really important, I think, strengthening of this insurance. It’s much more solid insurance as a result. But as a result, the insurance companies that participate in this market are reacting and making some changes in other aspects of coverage, which we can talk about.

It’s a year when it’s really important to take a look. And that starts with your current provider sends what’s called an annual notice of change that should have arrived either in the mail or via email already in September that summarizes any changes to your coverage. You should start by looking at that. It might show things like an increase in the premium you’re going to be charged monthly. It could involve a change in the deductible amounts. And very importantly, it can involve changes in the terms by which different drugs are covered. It’s really important to take a look at that. And then, you can get onto the Medicare plan finder, which is the government-run marketplace for plans, and log in, and it should show you what your options are for the year ahead. That’s the best way to do it. And there are different ways you can also reach out for in-person help.

2025 Medicare Part D Changes

Hampton: Well, let’s get into the payment structure for Part D. What can people expect in 2025 and go on forward?

Miller: One concern was that drug companies were going to jack up premiums in response to the higher costs and risks associated with that $2,000 out-of-pocket cap. And the Biden administration responded with a program that most insurers have bought into that is going to basically subsidize those insurers to help keep premiums from jumping too much. Plans are allowed to raise the premiums up to $35 a month, which might be a big deal, or it might not be depending on what your current premium is in terms of what the percentage increase on that will be. But you’ll want to take a look at that. There are changes to the amount of deductible amount that plans can have. And it’s called the deductible phase of coverage. The plans are permitted to have a deductible of no more than $590 next year. But you may find plans that offer better deals than that. And then also, during that first phase of coverage up to $2,000, plans are permitted to charge you up to 25% of your overall drug costs. But again, you may find plans that offer a better deal. Those are some of the elements to keep an eye on there.

Medicare’s New Prescription Payment Plan

Hampton: Let’s talk about another pocket-friendly change. Can you explain how Medicare’s prescription payment plan will work?

Miller: This is a new feature also being introduced next year that was in the Inflation Reduction Act. This is an option for people who have particularly high costs in the Part D plan to spread those payments out across the course of the year. And every plan is required to offer it. It’s something you can opt into. Once you’ve selected a plan, if you think your costs are going to hit that $2,000 limit or come close, you may want to look into signing up for this, in which case, you’re basically you’re spreading out the costs over the course of the year to kind of give more evenness to two-year costs. And I think this Medicare plan payment option also coupled with that $2,000 cap. An important aspect of this, I think, is that it’s going to give people more predictability and stability because they just think about planning their household finances for the year. Because this is a wild card that had been in the deck in terms of healthcare costs. And we know that healthcare costs are one of the most significant expenses that retirees face. I think these are really solid improvements in terms of making this insurance, just a much more sturdy, higher quality of insurance. But it also, I think, adds element of kind of stability from like a financial planning standpoint that I think is worth mentioning.

What Should Seniors Do if Their Medicare Advantage Plan Is Being Eliminated?

Hampton: And seniors are likely going to appreciate that. Well, Medicare says Medicare Advantage participants will have plenty of plan options where they live. If someone learns that their plan is being eliminated, what should they do?

Miller: So again, the Medicare plan finder, which we were talking about a minute ago, is a place where you can shop for not only Part D drug plans but also Medicare Advantage plans. When you log on to the Medicare site, it can show you what your options are for the year ahead. And in most parts of the country, there are still literally dozens of advantage plan offerings that are available. And since most of these plans include prescription drug coverage, there are some changes going on in the Medicare Advantage end of the pool as well. For example, maybe two thirds of these plans came with premium free drug coverage. And there was no additional premium for drug coverage because these managed-care plans have a lot of ways to offset costs underneath their financial structures. Well, with the new $2,000 cap, more of them are going to carry premiums next year. It’s just as you shop for these plans, it’s always important to take a look at what that coverage looks like.

The other thing to look at in Medicare Advantage is the network of healthcare providers that you’ll have access to. Because these are managed-care options, therefore you’re operating within a more narrow network of providers. One of the huge advantages of traditional Medicare is that you can see just about any healthcare provider in the United States, literally any that accepts Medicare you can go to. When you opt into Medicare Advantage, you’re accepting that limitation of a network people who have signed in, signed on to be part of the network of a given plan. And those networks of providers can and do change. They can change actually anytime during the year. But during the annual enrollment is your time to check and see, are the providers that I want to see still in my plan? And this can be a little difficult to suss out sometimes. There are issues with accuracy of the list of providers in some of these plans. A good thing to do, I think, is to check with your doctors. Say, “Hey, I’m thinking about signing up for this particular Medicare Advantage plan next year. Do you participate in it?” Get that confirmation direct from the doctor.

What You Need to Know About Switching Between Traditional Medicare and Medicare Advantage

Hampton: And that’s good advice. What if someone wants to make a bigger change? Like what if they want to switch from Medicare Advantage to traditional Medicare, or the other way around? What should they know?

Miller: This is a great question. The thing I want to focus on here is somebody who might want to go from Medicare Advantage back into or into the traditional Medicare program. And I’m going to take a step back on this for a second. When you first sign up for Medicare, that’s the best time to sign up for traditional Medicare paired with a Medigap supplemental plan. And the reason for that is that the insurance companies that sell Medigap are required to offer you a policy; they can’t do so-called medical underwriting. Meaning they can’t reject you due to a preexisting condition, and they have to offer you the best prevailing price available in the market at the time. It’s the best time to get a Medigap. And Medigap is important because without it, there are no caps on your out-of-pocket liabilities for Part A and Part B Medicare.

This is really critical to have that supplemental protection. Now, if you’re moving from Medicare Advantage into traditional Medicare at a later time, say you’ve been in, say you selected Medicare Advantage when you first signed up, several years from now down the road, you’ve decided you’re not happy with it, you want to go into the traditional program. You can do that switch during the annual enrollment period. The question is whether you’ll be able to get a Medigap. If you have a lot of preexisting conditions, you may not be able to get a policy or the price may not be attractive enough. It makes sense if you’re considering that step to do some shopping upfront for Medigap to find out if you’ll be able to get one before you make that shift.

Where Can You Go to Get Help Choosing a New Medicare Plan

Hampton: And finally, I know you gave hints earlier, where can someone go or call to get help when choosing a new Medicare plan?

Miller: Well, a lot of people work with insurance brokers, which can be fine. Insurance brokers tend to be quite knowledgeable about Medicare, but they are, they are typically representing not the entire market but whatever plans they have signed up to represent. You don’t get the full-market view when you talk to brokers. An option I like to recommend is what’s called the State Health Insurance Assistance Program. They go by SHIP for short. And these are government-sponsored, comprehensive, and unbiased counseling services that can help people with plan selection. They are available in every state. And in my recent column for Morningstar, you can find a link to a national directory. You can find out where the State Health Insurance Assistance Program is near to you. That’s the way I’d like to recommend people go if they need to reach out for some one-on-one assistance.

Hampton: And Mark, good news, your article will be in the show notes for everyone who is watching and listening, and everyone who is watching and listening, please share this episode with someone you know who is shopping around for Medicare. Thank you, Mark, for explaining the changes that are coming to Medicare in 2025.

Miller: Always a pleasure.

Hampton: That wraps up this week. Thanks for watching and making this show part of your day. Subscribe to Morningstar’s YouTube channel to see new videos about investment ideas, market trends, and analyst insights. Thanks to senior video producer Jake Vankersen and associate multimedia editor Jessica Bebel. I’m Ivanna Hampton, lead multimedia editor of Morningstar. Take care.