How Changes to Medicare Part D Will Impact Federal Annuitants
The new reforms might be worth giving it a second look, one expert says.
Major Medicare Part D reforms were enacted in the Inflation Reduction Act of 2022. Some of the legislation’s provisions seek to lower prescription drug costs for both Medicare beneficiaries and the federal government.
Historically, federal annuitants found little value in joining a Part D plan because FEHB plans’ prescription drug coverage was as good or better. However, certain new reforms strengthen the value of Part D and should be considered in your plan choice next year and even more in future years.
2023 and 2024 Changes
Medicare Insulin Prices Capped
Insulin covered by Part D plans is capped at no more than $35/month, starting this year. Part D plans will not have to cover all insulin products but will have to offer one of each dosage form— vial, pen—and insulin type—rapid-acting, short-acting, intermediate-acting, and long-acting.
Some annuitants will consider joining a Part D plan during the next Medicare Open Season to take advantage of these low prices. But before enrolling in a Part D plan and paying an extra premium, annuitants should first consider the prescription drug coverage provided by their existing FEHB plan, or any other FEHB plan. Many FEHB plans cover brand-name insulin products or generic substitutes at or below $35. If you’re in an FEHB plan that doesn’t offer a low price for the insulin you take, consider switching to a different plan before enrolling in Part D.
Expect More FEHB Medicare Advantage Plan Options
In a January letter, OPM encouraged carriers to offer more FEHB Medicare Advantage plan options to federal annuitants upon reaching age 65. These are special MA plans more generous than regulatory MA plans and are only open to federal annuitants. They have only recently been made available through FEHB.
Why offer more? OPM wants to maximize the value annuitants receive by enrolling in FEHB and Medicare. FEHB MA plans bundle a Medicare Part D plan for prescription drug coverage. So by joining an FEHB MA plan, you’ll receive improved Part D benefits going forward. Moreover, because Medicare is the primary payer for annuitant medical bills, these plans pass on most of their FEHB enrollee cost to Medicare, and offer low FEHB premiums, rebates on the Medicare Part B premium, or both.
There are several nationwide FEHB MA plans available: Aetna Advantage, APWU High, Compass Rose, Foreign Service, MHBP Standard, NALC High, Rural Carrier, and SAMBA. There are also local FEHB MA plans available from Humana, Kaiser, UnitedHealthcare, and UPMC that between them cover most states.
To join one of these FEHB MA plans, you must be enrolled in both an FEHB plan and Medicare Parts A and B. All FEHB MA plans either reimburse or reduce some or all the Part B premium. Many have $0 out-of-pockets costs for medical and hospital expenses from providers that accept Medicare, except for prescription drugs.
For most annuitants, the FEHB MA plans will be the least expensive plan choice considering premium savings as well as $0 out-of-pocket medical and hospital spending. Checkbook’s Guide to Health Plans ranks all FEHB plans based on a total cost estimate that’s a combination of for-sure expense (premium) plus likely out-of-pocket costs you’ll face based on age, family size, and expected healthcare usage.
For 2023 coverage, we calculate that a D.C.-area couple enrolled in Medicare Parts A and B with income below $194,000 could have saved $7,990 in estimated total costs this year by switching from BCBS Standard to United Choice Primary Retiree Advantage—a cost savings likely to remain the same in future years assuming no major plan changes.
While most annuitants would benefit financially from enrolling in an FEHB MA plan, they may not be the best choice for everyone.
If you fall into one of the high-income categories—more than $97,000 for individuals or $194,000 for couples—Part B is of limited financial value due to the higher premium. With FEHB MA plans, you’ll get hit twice with Income Related Monthly Adjustment Amounts (IRMAA), which means you’ll be paying both a higher Part B and Part D premium.
Additionally, if you spend a large portion of time abroad, only one FEHB MA carrier (UnitedHealthcare) provides reimbursement for routine overseas care. Of course, since you stay enrolled in an FEHB plan with any FEHB MA plan, you’ll always have the emergency overseas care coverage that every FEHB plan provides.
Finally, make sure to check the FEHB MA plan provider directory before enrolling. While the plans claim you can see any provider that accepts Medicare, there are a handful of examples where certain networks are excluded from coverage.
Part D Premium Increase Limits
Starting in 2024 and lasting through 2030, the IRA limits Part D premium growth to no more than 6% per year. Part D premiums increased 10% on average from 2022 to 2023, so the 6% cap offers some protection from large price hikes in the future.
Catastrophic Coverage Coinsurance Dropped
Once total spending between the Part D enrollee, Part D plan, and drug manufacturers reaches $7,400 in a year, catastrophic coverage begins. Currently, the enrollee pays 5% of expenses in the catastrophic coverage phase. Beginning in 2024, Part D plans will eliminate the 5% enrollee share.
Out-of-Pocket Spending Cap
In 2025, there will be a new $2,000 enrollee out-of-pocket spending cap in Medicare Part D plans. Additionally, enrollees will have the ability to spread out the $2,000 of out-of-pocket costs over the course of a year.
This Part D change will produce substantial savings for annuitants with high out-of-pocket drug costs. For those needing expensive brand or specialty drugs to treat cancer, multiple sclerosis, or other medical conditions, joining a Part D plan will be a huge cost saver, unless FEHB plans modify their offerings to match this benefit.
Why such big savings? Because the soon-to-be $2,000 out-of-pocket maximum in Part D is significantly lower than almost all catastrophic limits seen in FEHB plans, which range from as low as $1,500 to as high as $9,100 when using in-network providers for self-only enrollment.
The Final Word
Current federal annuitants, and soon to be annuitants, have even more healthcare decisions to consider: The choice of whether to enroll in Part B at age 65 (which opens the door to FEHB Medicare Advantage plans), which FEHB plan to select during Open Season, and now whether to enroll in Part D either through an FEHB MA plan or as supplemental drug coverage.
The right choice for you will largely be determined by your anticipated prescription drug usage and whether you are subject to higher Part B and Part D premiums through IRMAA.
If you have low usage, it doesn’t make sense to pay an extra Part D premium currently. There is no late enrollment penalty for Part D since your FEHB plan drug coverage is considered creditable coverage by OPM. If your situation changes in the future, you can enroll in Part D then.
For annuitants with moderate or high prescription drug usage, including annuitants that take insulin, joining Part D can be an important way for you to save on your out-of-pocket drug expenses. But first make sure you evaluate the drug coverage from your existing FEHB plan and consider other FEHB plans that might lower your out-of-pocket drug expenses.
If you have Part B, joining an FEHB MA plan will likely be the least expensive way for you to receive Part D coverage. Annuitants with just Part A can enroll in a supplemental Part D plan.
Kevin Moss is a senior editor with Consumers’ Checkbook. Checkbook’s Guide to Health Plans for Federal Employees is available to many federal employees for free; check here to see if your agency provides access. The Guide is also available for purchase and GovExec readers can save 20% by entering promo code GovExec at checkout.