Federal Annuitants Enrolled in Private Medicare Advantage and Medicare, Part B Need to Review Their 2025 Medicare Annual Notice of Change

OPM has also reported that most federal employees do not need to enroll in Medicare Part D. This is because all FEHB health plans have prescription drug benefits that are at least equal to the standard Medicare Part D prescription drug coverage. However, if a federal annuitant enrolled in Medicare Parts A and B incurs catastrophic drug expenses (defined as exceeding $8,000 during 2024) the federal annuitant can enroll in Medicare Part D with no late enrollment penalty. This has been the rule until now. 

However, starting January 1, 2025, as a result of the passage of the Inflation Reduction Act (IRA) of 2022, Medicare Part D will lower its catastrophic prescription drug expense limit to $2,000 per year. The lower catastrophic limit could result in more Federal annuitants enrolling in Medicare Part D. Those annuitants who are not currently enrolled in Medicare Part D, but who are enrolled In Medicare Parts A and B, and who have out-of-pocket prescription drug expenses exceeding $2,000 a year, may want to consider enrolling in Medicare Part D during the AEP (October 15 through December 7, 2024), with prescription drug coverage taking effect January 1, 2025.

As discussed below, Medicare beneficiaries have to be aware of the changes coming to Medicare Part D and the Medicare Advantage resulting from the passage of the 2022 IRA legislation. These changes will be reflected in a Medicare beneficiary’s Annual Notice of Change, which are being  sent out by the Centers for Medicare and Medicaid Services (CMS) to all Medicare beneficiaries during the last two weeks of September 2024.

What Is a Medicare Annual Notice of Change?

An Annual Notice of Change from a Medicare Part D beneficiary’s Medicare D prescription drug plan or a private insurer’s Medicare Advantage plan Annual Notice of Change presents how the beneficiary’s deductibles and co-payments will differ in the year ahead and whether the plan will be offered.

An Annual Notice of Change from a Part D prescription plan also states whether a Medicare Part D beneficiary’s prescription will be covered during 2025. And if so, how much the Medicare Part D beneficiary will pay? A Medicare Advantage Annual Notice of Change will tell whether the Medicare Advantage plan beneficiary’s doctors and hospitals will remain in the plan’s network. Federal annuitants enrolled in an FEHB program-sponsored Medicare Advantage plan will need to read the changes that their Medicare Advantage plan starting in January 2025. They have to make sure that doctors and hospitals will remain in the plan’s network. Many federal annuitants enrolled in an FEHB-sponsored Medicare Advantage plan are also enrolled in Medicare Part D. These annuitants should make sure that their prescriptions will be covered. If not covered, then these annuitants will need to switch their Medicare Part D plan. 

How the $2,000 Medicare Part D Prescription Drug Cap Affects Medicare Beneficiaries

The major Medicare change coming in 2025 in the form of a $2,000 cap of out-of-pocket prescription drug costs, will affect both Medicare Part D and Medicare Advantage beneficiaries in the following ways:

1. Medicare Part D health insurers will be responsible for paying more of a Medicare Part D beneficiary’s prescription costs due to the $2,000 cap; these insurers will be looking for ways to compensate for this change in the cap. That could mean higher Part D premiums (currently averaging $43 a month for stand-alone plans  according to the Kaiser Family Foundation), higher deductibles and copayments, possibly substantially higher than during 2024. The prescription drug change in 2025 could also lead to Part D beneficiary’s plan no longer covering certain medications that the beneficiary takes or raising the prices of one’s prescriptions.
2. Some of the Medicare Advantage plans might be facing a profit squeeze. Currently, Medicare Advantage plans often require Medicare Part D coverage. These Medicare Advantage Plans may respond to the $2,000 prescription drug cap by eliminating, or decreasing, benefits that keep the $0 monthly premiums intact. The result is that several benefits that Medicare Advantage benefits that the Original Medicare (Medicare Part A and Medicare Part B) cannot offer, such as dental, vision, hearing and gym membership, could be less attractive or possibly gone entirely, starting January 1, 2025.

Reading and Understanding the Medicare Annual Notice of Change

Only 36 percent of Medicare beneficiaries surveyed by eHealth.com said their Annual Notice of Change letter is “readily understandable”. 

It should take about 30 minutes of close reading the Annual Notice of Change to understand what will be different in 2025, and whether a beneficiary should switch plans on coverage during 2025.

During the AEP, a Medicare beneficiary can switch their current Part D plan to another Part D plan, from one Medicare Advantage plan to another, from Medicare Advantage to Original Medicare, and from Original Medicare to a Medicare Advantage plan. The AEP starts October 15, 2024, and ends December 7, 2024.

Federal annuitants enrolled in a private Medicare Advantage and/or Medicare Part D should carefully read their Annual Notice of Change in order to determine whether they want to stay in their current Medicare Advantage plan, switch their plan, or go back to Original Medicare and they resume their coverage through the FEHB program. The latter will be done during the FEHB program “open season” to be held from November 11,2024 through December 9, 2024. 

Federal annuitants who are not enrolled in Medicare Part D should add up their out-of-pocket prescription drug expenses during 2024. If they expect their total expenses to exceed $2,000 then they should enroll in a Medicare Part D plan with coverage taking effect January 1, 2025. They will have to be enrolled in Medicare Part A and Medicare Part B. In choosing a Part D plan, they will need to be sure that their prescription drugs are covered in the plan they choose.