AICPA Personal Financial Planning (PFP) Podcast

Episode Title: Talking about Medicare {PFP Section}
Date: January 28, 2025
Host: Kerry Sennett (AICPA & CIMA)
Guest Expert: Jim Sullivan (payforcare.org)
Main Theme: Key 2025 Changes to Medicare Prescription Drug Coverage and Best Practices for Advising Clients

Episode Overview

This episode focuses on important Medicare changes for 2025, especially around prescription drug coverage, and practical guidance for financial planners advising clients. Guest expert Jim Sullivan discusses changes in Medicare Part D, the introduction of a $2,000 out-of-pocket maximum, new payment options that smooth expenses, and critical annual steps to help clients optimize their coverage during Medicare’s Open Enrollment Period.

Key Discussion Points & Insights

1. Major Changes to Medicare Prescription Drug Coverage (Part D) in 2025

[00:39–04:58]

• $2,000 Out-of-Pocket Maximum:

  • Beginning in 2025, Medicare Part D and Medicare Advantage prescription drug plans will cap annual out-of-pocket costs for prescriptions at $2,000.
  • Before: There was no out-of-pocket maximum, leading some participants to pay unlimited amounts for expensive drugs.
  • Impact: This provides significant relief for high-cost beneficiaries, but $2,000 may still be a financial burden for many.
  • Quote:

    "Before the change in the law, the plan participant did not have the benefit of a maximum out of pocket amount and if he or she was taking very expensive drugs, they could be out of pocket at almost unlimited amount during the year. This is overall a good change, but we're going to talk about how it works..." — Jim Sullivan [01:35]

• Monthly “Payment Plan” to Smooth Costs:

  • Beneficiaries can opt into a new Medicare Prescription Drug Payment Plan, spreading out-of-pocket expenses evenly across the year (e.g., up to $167.67 per month).
  • Quote:

    "Beneficiaries may elect to have their prescription drug costs spread evenly throughout the year...This helps the beneficiary to smooth out the high cash payments that were sometimes due." — Jim Sullivan [02:42]

  • Beneficiaries must opt in themselves; insurance companies will not prompt enrollment.

• Simplified Structure:

  • Three phases remain for Part D:
    1. Deductible phase (deductible is $590 in 2025)
    2. Initial coverage phase
    3. Catastrophic coverage phase (after the maximum is reached, drugs are $0 out-of-pocket)

• What Counts Toward the Maximum:

  • Only costs for drugs on the plan’s formulary count toward the $2,000.
  • Monthly premiums do not count toward the cap.

• Best Practices:

  • Advisers should help clients determine eligibility for assistance programs if $2,000 is still a hardship.

2. Importance of the Annual Medicare Open Enrollment Period

[08:20–13:14]

• Timing: October 15 – December 7 each year, with changes effective January 1.

• Advisor’s Crucial Role:

  • Encourage every client to review their plan annually during open enrollment, especially to adapt to health changes or plan feature modifications.
  • Quote:

    "You can do your clients a big service by suggesting they use the open enrollment period to review their coverage. And if they haven't done it for many years, they may be surprised at how out of date their coverage is..." — Jim Sullivan [10:52]

  • Only 29% of beneficiaries review their Medicare coverage annually (Kaiser Family Foundation).

• Features to Review Each Year:

  • Premiums and Deductibles (plan can set less than the annual maximum deductible)
  • Co-pays and Coinsurance rates
  • Formulary Changes: Drug lists can change, affecting out-of-pocket costs and coverage.
  • Provider Network and Pharmacy Access
  • Drug Restrictions (prior authorization, step therapy, quantity limits)

• Specifics:

  • Open Enrollment applies to Part D and Medicare Advantage plans; it does not affect Medigap supplements.

3. Plan Terminations, Formulary Changes, and Payment Shifts

[13:15–22:44]

Plan Terminations

• Significant Plan Reductions:
  • Estimated 25% of standalone Part D plans in 2024 will terminate for 2025.
  • Example: SilverScript reduces from three plans to one; Mutual of Omaha exits Part D offerings.
  • Terminated beneficiaries are "crosswalked" (automatically transferred) to another plan, which may not meet individual needs.
  • Quote:

    "A lot of clients aren't even aware that their plan is being terminated for the next year. Every year, clients will receive what's called an annual notice of change [...] A lot of clients, however, don't read the notice and then in January they're surprised when they find out they've been moved to another plan..." — Jim Sullivan [16:42]

Formulary Changes — Real-Life Example

• Client saw premium drop for 2025 but missed that a critical (and expensive) medication, Zenpep, was being removed from the plan’s coverage.
• Original cost to client (as a Tier 4 drug) was $571–$371/month; without coverage, cost rose to $1,366/month.
• The advisor found alternative plans that still covered Zenpep in the client’s area.
  • Quote:

    "Now, unfortunately, this client had been diagnosed with pancreatic cancer...As it turned out, Zenpep was removed from the client's current Part D plan for 2025...the advisor did the research and found plans ... that still included Zenpep in the formulary." — Jim Sullivan [18:53]

Shift from Co-payments to Coinsurance

• More plans are switching from fixed copays (e.g., $47 per month) to a percentage-based coinsurance (e.g., 42% of drug cost).
• Coinsurance can result in dramatically higher costs for expensive drugs, but also pushes the beneficiary quickly to the $2,000 cap.
  • Quote:

    "So you can see why a flat dollar amount is preferable depending on the price of coinsurance and that has to be looked at carefully." — Jim Sullivan [21:53]

Employer “Creditable Coverage” Plans

• Those with employer-provided drug coverage should confirm annually if it's still “creditable” (i.e., as good or better than Medicare Part D) due to the new maximum out-of-pocket.
• Maintain documentation (creditable coverage letters) to avoid late enrollment penalties if switching to Medicare later.

4. Practical Client Advice for 2025

[22:45–25:53]

• Start Reviews Early: Don’t wait until the last days of open enrollment; aim for early November to allow careful plan changes.

  • Quote:

    "If you're going to have your clients review their coverage, do it before, preferably December 1st, so the changes can be thought through, made and submitted without having to do rushing at the last minute..." — Jim Sullivan [24:45]

• Prioritize Coverage Needs: The primary goal is securing coverage appropriate to anticipated healthcare needs, not just minimizing cost.

• Expert Assistance: For complicated scenarios or when unfamiliar with Medicare nuances, work with a trusted Medicare advisor (sales professional or fee-only).

  • Contact clients proactively; use open enrollment as a touchpoint for engagement.

• Younger Clients/Family: Remind clients in their 40s–50s with elder parents to pass along these recommendations.

Notable Quotes & Memorable Moments

• On the Impact of the New Out-of-Pocket Cap

  "For most beneficiaries, let's face it, $2,000 is still a lot of money. For that reason, many beneficiaries should determine if they are eligible for programs that help pay for their health and drug costs." — Jim Sullivan [06:54]

• On Reviewing Annual Notices

  "Every year, clients will receive what's called an annual notice of change from the insurance company, telling them important changes that are being made to their plan...A lot of clients, however, don't read the notice and then in January they're surprised when they find out they've been moved to another plan that they weren't even aware of." — Jim Sullivan [16:42]

• On the Importance of Focusing on the Right Coverage

  "The most important point to me is that our clients get the coverage for the type of care they want if they ever become seriously ill. Second, you want to make sure coverage they purchase is most cost effective." — Jim Sullivan [24:54]

Summary Timeline (Timestamps for Key Segments)

• 00:39–04:58 — Overview of 2025 changes: $2,000 cap, payment smoothing, simplified Part D structure
• 08:20–13:14 — Why annual open enrollment review is vital; steps and statistics
• 13:15–16:41 — Plan terminations, crosswalking, real-life examples
• 16:42–22:44 — Formulary removals, cost differences, copay/coinsurance example
• 22:45–25:53 — Practical advice: timing, priorities, advisor resources

Action Steps for Planners and Clients

• Review prescription drug plans during open enrollment (October 15–December 7, 2024)
• Check for plan terminations and core formulary changes every year
• Advise clients to opt into the new payment smoothing option if beneficial
• Assess employer plan “creditable coverage” status due to regulatory changes
• Remind clients not to wait until the last minute for changes
• Work with trusted Medicare advisors when needed

Additional Resources

• Medicare & You 2025 (detailed guide): www.Medicare.gov/MedicareAndYou
• AICPA PFP Retirement Healthcare Coverage Guide & Health Transitions Guide (exclusive member resources)