A Medicare Part D Premium Warning for Financial Planners

What You Need to Know

Nationally, the average monthly premium for prescription drug coverage is set to decrease slightly in 2024.
This average decline masks dramatic increases anticipated in several states with sizable retiree populations, a new survey suggests.
For high-end coverage in these big states, the projected Part D cost increases range from 21% to 77%.

On a nationwide basis, the average monthly premium for Medicare Part D prescription drug coverage is set to decrease slightly in 2024, falling to $55.50 from $56.49 per month this year.

This small reprieve is due to a variety of factors, including key policy changes made as part of the Inflation Reduction Act, and it will be welcomed news for many retirees who are living on a fixed income, especially given the relatively modest 3.2% Social Security cost-of-living adjustment set for 2024.

However, as a new survey report from HealthView Services warns, the average decline in Part D premiums actually masks a dramatic increase in premiums anticipated in several states with sizable retiree populations, namely California, Florida, New York, Pennsylvania and Texas.

Since Medicare Part D premiums vary by state and plan selection, such cost increases tend to receive less attention than Part B premiums, which are determined at the federal level, the report explains. Thus, for the millions of Americans preparing for and entering retirement each year, addressing health care expenses is not always a straightforward affair, especially when it comes to parsing the different parts of Medicare and determining how to supplement federal coverage with private insurance.

Indeed, according to the HealthView Services analysis, five providers offer Part D plans in each of the five states with the highest age 65-plus population, and each provider offers a mix of high-end, mid-level and low-end plans. Looking ahead to 2024, the pricing of such plans will jump significantly in the five aforementioned states, and the excess costs could cause significant pain for unsuspecting retirees.

Complex Picture

According to HealthView Services, it is important for financial professionals and their clients to note that the upcoming increase in Medicare Part B premiums of 5.9% for 2024 underscores the long-term trend of Medicare costs rising faster than consumer prices.

“The outsized jump in actual Part D premiums detailed in this paper will further contribute to this trend,” the report warns.

On the other hand, for the growing number of Americans on Medicare Advantage plans that include drug coverage, the rate of increase in premiums is lower than standalone Part D insurance. This dichotomy reflects a broader combination of plan components and varying levels of drug coverage provided by these plans, according to HealthView Services.

Moving forward, Medicare Advantage plans with prescription drug coverage will also be subject to some of the same forces that are driving Part D costs higher, the report warns, meaning that Americans should take a long-term view when making decisions about sourcing coverage.

“For many, retirement healthcare costs will include a combination of Medicare Parts B, D and supplemental insurance premiums, and related out-of-pocket costs such as co-pays, as well as expenses for dental, vision and hearing,” the report explains.

View by State

HealthView’s analysis of publicly available Part D premium data from three large plan providers serving California, Florida, Texas, New York and Pennsylvania shows increases in plan costs across the board.

The tables in the analysis show that average Part D premiums will rise by 30% in Texas and 53% in New York, with a range of growth in plan prices across the five states between 21% and 77%. There is an average of a 42% hike for high-end plans — which are popular among advisors’ clients and represent the smallest increase in 2024 costs by percentage growth.

Implications for Advisors and Clients

According to HealthView Services, early indicators from the five states with the highest 65-plus population show that Part D coverage will be significantly more expensive for many Americans in 2024.

As the report notes, an increase in Part D premiums of several hundred dollars a year may not seem that much until it is put in the context of this year’s Social Security COLA.

“The added cost for high-end Part D premiums (among the plans detailed in this report) will on its own account for 54% of the average cost-of-living increase that retirees will receive in federal benefits,” the authors warn. “Add in Part B premiums increases, and that number jumps to 70%.”

As such, advisors and clients need to be clear about what this means in practice.

“Over the course of retirement, our data continues to show healthcare costs continuing to rise faster than CPI, driven by premium inflation, out-of-pocket cost inflation, age rating for supplemental insurance, and the greater utilization of services,” the report warns. “This means that healthcare costs will be far higher at the end of retirement than at the beginning.”

Ultimately, greater Part D premiums are a part of this overall picture and may add an additional $53,000 in lifetime premiums for the typical couple, based on the most recent two-year inflation rate of 42%.

“Ensuring funds will be available to address medical needs through retirement is a planning, investment and decumulation challenge,” the report warns.