New Medicare Legislation Bars Medigap Drug Insurance

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New Medicare Legislation Bars Medigap Drug Insurance

Medicare beneficiaries will not be allowed to buy insurance to cover their out-of-pocket drug costs under the new Medicare drug bill. A little-noticed provision prohibits the sale of any Medigap drug policy that would help pay drug costs after January 1, 2006.

Lawmakers say beneficiaries should bear some of the cost of the new benefit. Health economists have long asserted that, when beneficiaries are insulated from the costs, they tend to overuse medical services causing higher Medicare spending. Critics say this provision will make it financially painful for seniors to buy drugs and thus keep them from actually using the benefit.

Under the legislation, an old Medigap policy with drug benefits can be renewed, but only by a person who decides to forgo the new Medicare drug benefit. Persons signing up for coverage under the new Medicare drug program will not be able to purchase or renew older Medigap plans that cover prescription drugs. Out-of-pocket costs under the new drug program are expected to be substantial. Under the standard Medicare drug benefit as defined by the legislation, in 2006 beneficiaries will be responsible for:

a $250 deductible,
25 percent of all drug costs from $251 to $2,250
and all of the next $2,850 in drug costs; a total of $3,600 in out-of-pocket costs, not counting about $420 per year in premiums.

Comparisons between drug plans are likely to be difficult. Plans will have the flexibility to vary the coverage they offer and the price beneficiaries pay for drugs. If a plan does not cover a drug, or if it later decides to drop coverage for it, beneficiaries will wind up paying all of those costs out-of-pocket. Medicare would not pay anything for drugs that are not included on the drug plan’s list.

Economists also say that drug prices will continue to climb, driving up the cost of the coverage. Not only will premiums rise every year as they do now, but the deductibles and the “doughnut hole,” or gap in coverage, will grow every year as well. After eight years, the Congressional Budget Office projects that seniors would pay a $445 deductible and those with the largest drug bills would be entirely responsible for more than $5,000 in drug costs.

TSCL is working with Members of Congress to develop legislation that would close the hole in coverage.

Source: “New Medicare Bill Bars Extra Insurance for Drugs,” Robert Pear, The New York Times, December 6, 2003. “Analysts: Medicare Drug Costs Will Rise,” The Associated Press, November 25, 2003.

March 2004