Medicare Updates and Private Insurance

Some private health plans will be affected by Medicare updates and improvements to its prescription drug coverage that go into effect on Jan. 1, 2025. Is yours one of them?

Question: Will upcoming changes to Medicare’s prescription drug coverage negatively affect workers who delayed enrolling Medicare at 65 and stayed on their employer’s health plan instead?

Answer: If you are employed in a job that provides health insurance past age 65, you can delay signing up for Medicare without penalty, as long as certain conditions exist. In the case of prescription drug coverage, the plan must pay on average as much as the standard Medicare prescription drug coverage, or Part D.

Upgrades to Medicare prescription drug coverage under the Inflation Reduction Act will go into effect Jan. 1, 2025. But some employer plans that qualified as “creditable” because their benefits were at least as good as those offered by Part D before the changes may no longer be accepted as equivalent to Medicare. For instance, starting Jan. 1, the out-of-pocket maximum under Part D will be $2,000 a year.

Generally, if a private plan isn’t considered equivalent to Part D, the policy may not suffice as a substitute allowing beneficiaries to delay enrolling in Part D without a penalty.

The Centers for Medicare and Medicaid Services (CMS) says it is evaluating the impact the Inflation Reduction Act (IRA) has on these determinations and will not disqualify private plans that are currently considered creditable, for now. The agency tells Kiplinger: “In basic terms, if a health plan’s prescription drug benefit was determined to be creditable in 2024…it should continue to be considered creditable in 2025, as long as it continues to meet the criteria.”

CMS added that it “is evaluating the continued use of the existing creditable coverage simplified methodology, or establishing a revised one, for plan year 2026, based on the recent changes to the standard Part D benefit made by the IRA.”

So, if your plan is considered a satisfactory substitution for Medicare Part D now, it should also work that way in 2025.

The late enrollment penalty is imposed every month you are enrolled in Medicare if, at any time after your initial enrollment period, there’s a period of 63 or more days in a row when you don’t have Medicare drug coverage or other creditable prescription drug coverage.

Medicare calculates the penalty by multiplying 1% of the “national base beneficiary premium” ($34.70 in 2024) times the number of full, uncovered months you didn’t have Part D or creditable coverage. The monthly penalty is rounded to the nearest $.10 and permanently added to your monthly Part D premium.

The law requires insurers to notify Medicare-eligible policyholders whether their prescription drug coverage is creditable coverage. But if your employer or insurer hasn’t notified you, you should inquire in time to plan your coverage decisions when Part D changes.

Kathryn Pomroy is a contributing writer at Kiplinger.com. For more on this and similar money topics, visit Kiplinger.com.

©2024 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

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