This year the Centers for Medicare & Medicaid Services (CMS) issued Calendar Year (CY) 2025 Part D Redesign Program Instructions, offering clarity on how the Inflation Reduction Act (IRA) will influence Medicare Part D prescription drug coverage and what that means for group health plan sponsors. Medicare Part D provides prescription drug coverage to Medicare beneficiaries, helping them manage the cost of medications.
With this update, plan sponsors must re-evaluate whether their prescription drug coverage meets the “creditable coverage” criteria under Medicare Part D. It’s important for self-funded employers to understand the Part D enhancements in order to determine their next steps.
All health plan sponsors that offer prescription drug coverage to Part D-eligible individuals must provide an annual notice informing them whether the prescription drug coverage offered under their plan is “creditable.” To be considered creditable, the coverage must provide benefits that are at least as comprehensive as those offered by the standard Medicare Part D plan.
Determining creditable coverage involves various factors, such as:
Every year, self-funded employers must disclose their creditable coverage status to CMS and notify all Medicare-eligible individuals. In the most recent guidance from the CMS, plan sponsors are now required to reassess the overall value of their prescription drug coverage. This reassessment is crucial, especially for those with high-deductible health plans (HDHPs) or those that narrowly passed the 2024 creditable coverage tests. Employers may need to consider adjusting deductibles, reducing out-of-pocket maximums, or altering member coinsurance to maintain creditable coverage status.
In this update, the CMS also clarified some uncertainties regarding how to calculate whether a plan’s coverage is creditable, including whether or not discounts paid by manufacturers are considered part of the “plan paid” amount (they are not). This means that while it may become more challenging for some plans to pass creditable coverage testing, the threshold increase is not as significant as initially thought.
The IRA has introduced significant changes to Medicare Part D that will enhance the standard benefit’s overall coverage in 2025, including capping annual out-of-pocket costs at $2,000 with an annual adjustment for inflation. The cost-sharing structure involving government, manufacturer, and plan funding will also be adjusted.
With these changes, health plans that previously met the creditable coverage requirements may no longer qualify.
For self-funded employers, particularly those offering HDHPs, these changes pose a challenge. Many employer-sponsored plans have higher out-of-pocket maximums (compared to Part D’s new $2,000 out-of-pocket maximum) because they typically apply a single out-of-pocket maximum to cover medical and prescription expenses. The new CMS guidance emphasizes that when determining whether a plan’s prescription drug coverage is creditable, the portion of the out-of-pocket maximum attributable solely to prescription drugs must be considered. This may make it increasingly more difficult for plans to meet creditable coverage standards.
Self-funded employers need to take proactive steps to evaluate the impact of these changes on their health plans. Here are some key actions to consider:
By taking these steps, self-funded employers can better navigate the evolving landscape of Medicare Part D and ensure their health plans remain compliant and valuable for all members.
To learn more about how Healthgram can improve your company’s self-funded approach, reach out to a member of our team.