Congress Adds Prescription Drug Benefit

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Congress Adds Prescription Drug Benefit

Special report by Advisor editor, Mary Johnson
We are still learning about the Medicare prescription drug legislation that Congress passed late last year. The bill is complex and far from perfect. To make the bill even harder to understand, out-of-pocket health care costs are expected to vary from state to state in the future and, for the first time, your income will become a factor.

We usually reserve this edition of the Advisor for our annual “Senior Survey.” This year, we’ve included my initial interpretation of the major provisions of the drug bill as well. You’ve probably already done a lot of reading on this and, if you are like me, you may be reading conflicting opinions on how you personally will be affected. Here’s my summary based on my own extensive research. Keep in mind that it will take some time before all the details become final as the government writes the regulations for implementation of this bill.

In general, most seniors can expect to continue paying very substantial out-of-pocket amounts for prescription drugs. In addition, the legislation will add new out-of-pocket costs as early as next year, even before the new benefit starts. Included in the prescription drug bill are incentives for employers to maintain prescription drug benefits for their former employees. Will these incentives act as they were intended? Right now, most of us continue to study the intricacies of the bill. Here are just a few of the major provisions and when they start:

2004–2005 — Medicare prescription drug discount cards.
Starting in April of this year through 2005, Medicare recipients will have to sort through as many as 20 competing companies offering prescription drug discount cards for savings on their medications. The drugs and the amount of discounts offered by each will vary, but administration officials estimate the card could reduce pharmacy bills by 15% or more. The companies may charge different annual fees that may not exceed $30. The new cards will compete for business against non-government discount cards (like TSCL’s RxSavings Plus card) and with Internet pharmacies that may offer lower prices and no annual fees. (The cards can NOT be used to purchase imported drugs. Regrettably, the big drug companies used their massive financial clout to convince Congress to effectively ban market access to affordable prescriptions for seniors.) Unlike the discount cards now available, this program would only allow a Medicare recipient to sign up for one card and beneficiaries will be locked in, only able to opt for a different card during the annual open enrollment period. To find out whether a discount card is a good deal or not, seniors may check the Medicare web site at http://www.medicare.gov or call 1-800-Medicare (1-800-633-4227) once the program begins.

Special low-income provisions:
In 2004 and 2005, an estimated 3 million seniors will be eligible for an annual government benefit of up to $600 credited to their drug discount cards to defray drug costs. Depending on income, there will be a co-payment of either 5% or 10% of the prescription’s cost. Seniors with incomes up to $12,123 would be eligible. This program will be phased out in 2006 with the start of the main prescription drug benefit.

2005 — Medicare Part B deductible’s annual increase begins.
Little mention has been made of a provision that will increase the Medicare Part B annual deductible from $100 to $110 starting next year. Unlike other health insurance, the deductible will then increase annually by the growth in overall spending under Medicare in the same manner as the Part B premium that jumped 13.5% this year alone. The Congressional Budget Office has estimated that the Part B deductible will grow to $166 by 2013. This seems very optimistic to me, because the new drug legislation lavishes a wealth of generous reimbursements on health care providers. Medicare beneficiaries are likely to fork out considerably more in Part B premiums and deductibles than estimated. In addition, drug plan deductibles will also increase annually and are projected to rise to $445 by 2013.

2006 — Main drug benefit starts.
Beginning in 2006, Medicare beneficiaries are expected to be able to sign up for either a drug plan or a private health plan that offers drug coverage. Because the coverage will be offered through private health plans, premiums will vary but are expected to average $35 a month per person or about $420 a year.

Under the “standard drug coverage” as defined by the legislation, the beneficiary pays a $250 deductible. Of the next $2,000 in costs, Medicare would cover 75% of drug costs and the beneficiary would pay 25%, or $500. The beneficiary would then be responsible for all of the next $2,850 in drug costs. The beneficiary would pay $3,600 for the first $5,100 worth in prescription drug costs a year, and that doesn’t include the estimated $420 in premiums. When out-of-pocket spending (not including premiums) exceeds $3,600, then catastrophic coverage kicks in and the beneficiary pays 5% of the cost of each prescription.

Special low-income provisions:
Beneficiaries with incomes not exceeding $13,054 a year will pay no premium or deductible and will be able to buy generic drugs for $2 and brand-name drugs for $5. In addition, seniors with slightly higher incomes, up to $14,505 will pay a premium, depending upon income, that will not exceed $420 per year, a $50 deductible and then 15% of the cost of the drugs they buy. Asset tests will apply.

2007 — Means Testing begins.
Seniors with incomes exceeding $80,000 (for an individual) or $160,000 (for a couple) start to pay higher Medicare premiums phased in over a five-year period. Currently, all Medicare recipients pay a premium that covers 25% of the program costs and the government pays the other 75%. Depending on their income, higher income beneficiaries will pay from 35% to 80% of the premium.

Higher Income Seniors Will Pay More

Income (individuals)	Percentage of premium
$80,000 — $100,000	35%
$100,000 — $150,000	50%
$150,001 — $200,000	65%
Over $200,000	80%

2010 — Competition with traditional Medicare begins.
Under this experimental program, traditional government-run Medicare will compete directly with private plans in up to six metropolitan areas where at least 25% of Medicare recipients are in private plans. If traditional Medicare costs more than private plans, beneficiaries under traditional Medicare would have to pay higher premiums. The experiment would last six years.

Editor’s note from Mary Johnson:
Some Members of Congress who voted in favor of this legislation sought assurances in advance that their cities would NOT be chosen for the 2010 Medicare competition experiment. If that isn’t enough to raise doubts, Congressional negotiators also scrapped an amendment that would have required Senators to give up their more generous drug benefits and accept the Medicare drug benefit instead.

Sources: “Drug Benefit’s Impact Detailed,” Edward Walsh and Bill Brubaker, The Washington Post, November 26, 2003. “Congress Sends Medicare Overhaul to Bush,” The Associated Press, November 26, 2003. “Letter to Senator Don Nickles,” Congressional Budget Office, November 20, 2003.

February 2004