A Guide to the New Medicare Prescription Drug Benefit
The Medicare Prescription Drug, Improvement, and Modernization Act passed by Congress and signed by President George W. Bush in late 2003 is like a giant sequoia: You can't get your arms around it all at once.
This guide addresses the new prescription drug discount card program, which went into effect in June. After that I summarize the main provisions of the Medicare reform bill: the prescription drug benefit to be made available in 2006 and additional private Medicare plans (Medicare + Choice, now called Medicare Advantage).
Prescription Drug Discount Cards
There are five things you should know about the new temporary drug discount cards:
The federal government does not offer the cards directly. The cards come from private-sector sponsors such as pharmacies, pharmacy benefit managers, insurers, and Medicare + Choice (Medicare Advantage) plans. In Indiana, there are about 40 approved cards; the number will vary across the country. The federal government's role is to ensure the cards meet federal regulations; each senior or disabled person with Medicare decides which card, if any, he or she wants.
The discount card program is voluntary. No Medicare beneficiary is required to change the coverage he or she now has. The only Medicare beneficiaries who cannot apply for a discount card are those who also receive Medicaid benefits (dual eligibles). People with dual eligibility will continue to have their prescription drugs covered under their state Medicaid programs until 2006.
People who already have a drug discount card from their employer or Medigap insurer can keep that card and sign up for another card under the new Medicare program. You can have only one "endorsed" (Medicare-approved) card at a time, but you can keep a current card and then use whichever one gives the bigger discount for a particular drug. Medicare is claiming average discounts of 11 to 18 percent on brand-name drugs and 39 to 65 percent on generic drugs, compared to what other Americans, including those with public or private health insurance, pay.
A person who chooses a card for 2004 can keep that same card for 2005, choose a new one, or drop out of the program completely. Once a card has been chosen, however, a person cannot change cards during the year. The discount card program will end in 2006, when the Medicare prescription benefit begins.
Card sponsors are permitted to charge an enrollment fee of up to $30 per year for the card. Each card must give enrollees a wide choice of local retail pharmacies; some also have mail-order options. Each card has differing discounts for different drugs. Card sponsors can change their discounts week by week.
$600 Credit for Low-Income Seniors
A single person with an annual income of no more than $12,569, or a couple with an income of no more than $16,862, can receive a $600 credit on a discount card for 2004 and another $600 credit for 2005. There is no asset test, unlike most government benefits for low-income people.
For these low-income enrollees, the discount card program provides not only regular discounts on drugs, but also $600 in free prescription drugs each year for the next two years. Persons eligible for the $600 credit will be responsible for a 5 or 10 percent copay, depending on their income, while using the $600. Any of the unused $600 for 2004 will roll over into 2005. The government also will pay the annual card enrollment fee.
Each state has provided the federal government with a list of people on Medicaid (not eligible for a card or the $600 credit) and lists of seniors on other low-income programs who can qualify for the $600 credit.
There are two different application forms: one for people eligible for the $600 credit, and another for people with a higher income who want only the discount card. The discount card sponsor compares its applicants with the state lists, along with data from Social Security and the Internal Revenue Service, before providing the $600 credit. The applying senior does not have to send financial documentation with the application.
Many states have their own programs in place to help low-income seniors. For example, Indiana's Hoosier Rx pays 75 percent of a senior's drug cost if his or her income is under $1,068 per month. The federal Medicare reform bill left it up to the states to decide how to coordinate their existing benefits with the new discount card and $600 credit. Indiana decided to let clients have both Hoosier Rx and the $600 credit on a discount card.
Enrollment in the temporary drug discount card program has been lower than anticipated, for two reasons. First, the program has been a hot election-year topic, with seniors hearing conflicting information from the two political parties regarding the value of the benefit. Second, an increasing average life span has created two different generations of retirees.
The older seniors have no idea how to use www.medicare.gov to compare cards on the Internet, and they have experienced so many problems telephoning 1-800-MEDICARE that most are paralyzed into inaction. If you know how to go on the Internet and check prices, please offer to help senior citizens who aren't as computer-savvy. It isn't difficult to do, and they'll certainly appreciate your help.
Recently, word has spread that seniors should simply go to their favorite pharmacy and enroll in a card program accepted there. While that approach may not provide the biggest discounts available for that particular person's drug, it may be the only way many older seniors enroll in a discount plan. Again, offer to help your parents, neighbors, and friends do this if they are confused or need help getting to a pharmacy.
After 2005: The New Drug Benefit
In 2006, people with Medicare will have access to a new permanent prescription drug benefit and additional health plans, such as HMOs and Preferred Provider Organizations (PPOs), as alternatives to original Medicare. These options will be voluntary: Traditional Medicare will continue, so seniors will not be required to make any changes if they prefer not to.
People on Medicare don't have to do anything until November 2005 at the earliest. Then they will have the following options:
Do not change anything
Those who are content with current prescription drug coverage from their employer or Medigap can keep it, for as long as the employer provides the benefit. The new law will pay the employer 28 percent of the person's drug costs (up to $5,000 per year) if the employer continues the retiree's drug benefit--an incentive for employers not to use this law as a reason to dump retirees. A person with no drug coverage can choose to continue with no coverage.
Keep current original Medicare coverage and Medicare supplement (if you have a supplement) for hospital and doctor bills, and sign up for the new prescription benefit.
Like the discount cards in 2004 and 2005, the prescription benefit will not be provided as a direct government benefit. It will come from private companies, such as insurance firms, that decide to offer a plan. In November 2005, people on Medicare will receive written information about the drug-only plans in their areas and will be asked to choose which one, if any, they want to join.
People with Medigap drug coverage will then have to decide whether to (a) keep their current drug coverage, (b) drop the drug part of their supplement and sign up for a new Medicare drug-only plan, or (c) leave original Medicare and receive all Medicare benefits (including drugs) from a private plan. Let's look at each choice individually.
(a) Keeping Medigap coverage
Before 1992, insurers offered whatever drug coverage people in the market wanted to buy. Some older seniors still have 80 percent prescription coverage under these older policies, but with rather high monthly premiums. Since 1992, federal law has limited drug coverage in standardized Medigap Plans H, I, and J to 50 percent with a yearly maximum.
Beginning in 2006, Medigap Plans H, I, and J will not be sold with a drug benefit. The law also provides two new Medigap supplement plans in 2006 with catastrophic coverage.
In 2006, then, seniors who do not sign up for the Medicare drug-only plan will be able to choose among the following options:
- the 10 current standardized Medigap plans;
- two existing high-deductible plans;
- H, I, and J with no drug coverage; and
- two new catastrophic plans.
People with current drug coverage under Medigap who want the new Medicare drug benefit can either keep their current Medigap plan minus drug coverage or purchase a new standardized policy.
(b) Choosing the Medicare drug-only plan
For people who choose a Medicare drug-only plan in 2006, the estimated premium is $35 per month. Seniors currently lacking drug coverage who do not sign up in 2006 will face higher premiums in the future. Those higher premiums probably will apply to people who keep Medigap drug coverage in 2006 and later want to drop it and join a Medicare drug-only plan.
For those Medicare enrollees who choose the Medicare drug-only plan, benefits are shown in Table 1. As Conrad Meier explained in the January 2004 issue of Health Care News, "Medicare recipients with yearly income less than [100 percent of poverty] ... will pay no premiums and no deductibles, and only a $2 co-payment for prescriptions for generic drugs and $5 for name-brand drugs. Once annual drug costs reach $3,600, even these co-payments end.
"Medicare recipients with higher yearly incomes will pay, typically, a $35 monthly premium and a $250 annual deductible, plus a 25 percent co-payment on drug costs up to $2,250, 100 percent from $2,250 to $5,100, and 5 percent after that," Meier concluded. Moderate or higher-income seniors will pay at most $4,515/year for drugs.
People with income up to 150 percent of the poverty line and assets of up to $10,000 ($20,000 for a couple) will receive various benefits based on a sliding income scale, which will cover most of their drug expenses between $2,251 and $5,100.
A lot of controversy exists regarding the lack of coverage for nonpoor seniors in the "doughnut hole"--where annual drug costs are between $2,251 and $5,100. This was the result of a political compromise to keep the new benefit within a budget limit. Basically it means low-income seniors will have almost all their drug expenses covered by this new benefit and all seniors will have exceptionally high expenses (more than $5,100) covered, but middle-income seniors will have to pay all of their expenses between $2,251 and $5,100. Since this amounts to between $187 and $425 per month, most nonpoor seniors can probably afford to pay for their own drugs ... or at least that's the theory. The law prohibits enrollees from purchasing private insurance to fill this coverage gap.
Medicare and Medicaid dual eligibles will have their drug coverage shifted to Medicare in 2006. They will have no premium or deductible, and they will pay $1 for a generic drug or $3 for a brand name drug.
The Medicare Part B deductible will increase from $100 to $110 in 2005, and a physical for people enrolling in Medicare will be covered. Although there are bills pending in Congress to allow importation of foreign drugs, the current Medicare ban on buying drugs from Canada remains. Means-testing of the Part B premium begins in 2007 for people with incomes above $80,000 ($160,000 per couple).
(c) Leaving traditional Medicare and choosing a private plan
The third choice in 2006 will be to leave original Medicare altogether and receive all Medicare benefits (including drugs) from a private plan. As previously stated, this is now named Medicare Advantage. A Medicare enrollee who chooses Medicare Advantage will remain in Medicare but will receive health care through an HMO or PPO.
The new Medicare law is increasing federal outlays to Medicare managed care plans. During the past few years, most Medicare Health Maintenance Organizations (HMOs) either left the market entirely, increased premiums dramatically, or reduced benefits because of severe financial limitations by Medicare. But reports indicate managed care plans are already reducing premiums and improving benefits in response to the new reform measure, and some Medicare HMOs are planning to return to these markets because of the increasing federal money.
The current managed care plans will continue, and they will be joined by new regional PPOs covering an entire state or more than one state. At a recent conference, I heard these PPOs described as plans with no set benefits, which rely on actuarial-equivalent standards (no one at the conference tried to define that) with no state regulation.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 is a gigantic new law. Many seniors are confused about it and looking to their elected officials for answers.
State officials will have much work to do in the next few years, providing financial data for discount card eligibility and shifting Medicaid drug coverage to Medicare in 2006. At the same time, state officials will also have to help seniors under the 150 percent poverty level understand and enroll in the various drug benefits.
Ed McClain is the senior citizen advocate for Golden Rule Insurance Company, hired in 1997 to help senior citizens better understand government benefits to which they are or may be entitled, including Social Security, Medicare, and Medicaid. He writes a yearly brochure, "Government Programs for Seniors," explaining these benefits. His email address is email@example.com.