The Annual Enrollment Period is here, and with it, increasing Part D premiums.
Part D plans contain prescription drug coverage for Medicare beneficiaries. These plans are sold by private insurance companies and are updated each year. Plans can change coverage levels, drug formularies, and of course, your monthly premium.
While we see many Part C (Medicare Advantage) plans decrease their monthly premium, Part D plans are continuing to increase.
Annual Enrollment Period and Part D Plans
The Annual Enrollment Period (AEP) occurs each fall from October 15 through December 7. Prior to this, each Part C and Part D insurance company is required to send out an Annual Notice of Change (ANOC) to their plan members. As it sounds, this notice informs policyholders how their plan will be changing in the upcoming year. During AEP, individuals can choose to leave their current plan and enroll in a new one, which would then be effective on January 1 of the new year.
2022 Part D Premium Increases
The Centers for Medicare and Medicaid Services (CMS) recently released the 2022 premiums, deductibles, and other changes for both Part C and Part D plans. They stated that the average Part D monthly premium would be $33, compared to an average of $31.47 in 2021. This is an increase of nearly 5%.
How Part D Premiums Are Calculated
Premiums for Part D plans are based on bids that are submitted by MAPD (Medicare Advantage with Prescription Drug) plan carriers and stand-alone PDP (Prescription Drug Plan) carriers. The bids are not weighted by enrollment.
The base premium for each plan is calculated by comparing the plan’s bid to the national average bid amount. The plan’s premium will be equal to the base beneficiary premium plus the cost difference between the plan’s original bid and the national average bid amount.
The premium can then be reduced by Medicare Advantage rebates if it is not a stand-alone Part D plan.
The premium may also be increased on an individual basis depending on two calculations.
Part D Penalty
If a Medicare beneficiary has been penalized for late enrollment, this penalty will also be added to their monthly premium. This is the most common penalty associated with Medicare plans because it is often overlooked by individuals who are not currently taking prescription medications when they become eligible for Medicare.
Unless an individual has other “creditable” coverage, they must apply for a Part D plan as soon as they become eligible for Medicare at age 65.
Other “creditable” coverage usually comes in the form of an employer’s group health policy. To be considered creditable, the prescription portion of the plan must meet four requirements. It must pay at least 60% of prescription costs, cover both generic and brand-name medications, offer coverage at a variety of pharmacies, and either not have a maximum benefit amount or have a low deductible.
If the individual did postpone enrollment without creditable coverage, the Part D penalty will apply. The cost will depend on how long the individual went without creditable prescription coverage. The penalty is calculated by multiplying 1% of the national base beneficiary premium by the number of full months the individual went without coverage. That number is rounded to the nearest ten cents and added to the individual’s monthly premium. The national base beneficiary premium can change each year (usually an increased change, not decreased), so the penalty often increases each year.
If an individual qualifies for Medicare’s Extra Help program, the Part D penalty is waived.
Income-Related Monthly Premium Adjustments
Both Medicare Part B and Part D may increase premiums for individuals based on the beneficiary’s adjusted gross income. This is called an Income-Related Monthly Adjustment (IRMA). This practice began in 2011.
If an individual’s modified adjusted gross income, taken from two years prior, is more than a specified amount, then that beneficiary’s monthly Part B and Part D premiums will be increased. In 2021, the threshold was $88,000 for an individual tax return and $176,000 for a joint tax return. The increases to the monthly premium ranged from $12.32 per month to $77.14 per month in 2021.
Individuals who have income over these thresholds will pay a larger portion of the total cost of Part D coverage. The adjusted amount will be paid to the federal government, not the private insurance carrier.
Predictions about Future Prescription Drug Costs
CMS is continuing to analyze the Part D program to find ways to reduce out-of-pocket costs for individuals. The Senior Savings Model is now part of more than 2100 plans in 2022. This model intends to increase the access and affordability of select insulins for Medicare beneficiaries.
The Biden Administration is at the forefront of this plan. Biden recently signed an executive order to increase competition between pharmaceutical companies, thereby reducing the cost of medications and price gouging. Their thought is that it is the lack of competition among manufacturers that is driving the high cost of drugs.
The executive order asks the Federal Trade Commission to place a ban on the “pay for delay” practice that is common in brand-name drug manufacturers. This is a practice where the brand-name company pays generic manufacturers to stay out of the market. It has caused the cost of medications to be increased by $3.5 billion each year. It is also thought that this practice reduces the innovation of drug companies.
The Biden Administration has also asked that the Food and Drug Administration work with individual states and tribes to begin importing prescription medications from Canada. The administration has also directed the Department of Health and Human Services to increase their support for generic medications and to issue a comprehensive plan to combat the high costs of prescription drugs.