Senator Brian A. Joyce

<< Return to Senior Citizens' Page

Information for Senior Citizens:
Medicare Prescription Drug Law Changes

FACTS:
• Enacted on December 8, 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (P.L.108-173) creates a new drug benefit as Part D of Medicare.

• The drug benefit begins January 2006; until then, there is an interim Medicare-endorsed drug discount card and transitional assistance program.

• The new law also includes other changes for beneficiaries, including increases in the Part B deductible, income-relating the Part B premium, and new preventive benefits.

Transitional Discount Card Program:
• Beginning June 2004 and ending by January 2006, Medicare beneficiaries have access to Medicare-endorsed drug discount cards, estimated to produce savings of 10-15% overall, although minimum discount is required.

• Enrollees can only sign up for only one Medicare-endorsed card per year. Enrollees can have as many non-Medicare approved cards as they want.

• For beneficiaries with incomes below 135% of poverty ($12,569/single; $16,862/couple in 2004) who do not have private or Medicaid drug coverage, the government provides $600 per year for drug expenses in 2004 and 2005 and pays the annual enrollment fee.

The Part D Prescription Drug Benefit:
• Medicare will begin to pay for outpatient prescription drugs through private plans beginning in January 2006.

• Beneficiaries can remain in the traditional FFS program, enrolling separately in private prescription drug plans (PDPs), or they can enroll in integrated Medicare Advantage (MA) plans for all Medicare-covered benefits, including drugs.

• If two or more risk-bearing plans are not available (including at least one PDP), Medicare will contract with a “fallback” plan to serve beneficiaries in that area.

• Plans are permitted to offer an alternative benefit design provided the alternative plan is actuarially equivalent and does not increase the Part D deductible or out-of-pocket limit.

• Plans are required to provide drugs in each therapeutic class or category but have flexibility to establish preferred drug lists. They may also create a preferred network of pharmacies and reduce beneficiary cost-sharing for drugs dispensed by preferred pharmacies.

• Beneficiaries will pay an estimated $35 per month in premiums for basic drug coverage in 2006, in addition to the Part B premium. Plans may also offer supplemental benefits for an additional premium.

Under the standard benefit, beneficiaries in 2006:
• Pay the first $250 in drug costs (deductible)

• Pay 25% of total drug costs between $250 and $2,250

• Pay 100% of drug costs between $2,250 and $5,100 in total drug costs (the $2,850 gap or “hole in the donut”), equivalent to $3,600 out-of-pocket

• Pay the greater of $2 for generics, $5 for brand drugs, or 5% coinsurance after reaching the $3,600 out-of-pocket limit ($5,100 catastrophic limit).

~The deductibles, benefit limits, and catastrophic thresholds are indexed to rise with the growth in per capita Part D spending. As a result, the benefit gap is projected to increase from $2,850 (2006) to $5,066 (2013).

Low-Income Assistance:
• Medicare will provide additional assistance to beneficiaries who qualify based on low incomes and limited assets. CBO (Congressional Budget Office) estimates 14.1 million beneficiaries will be eligible for such assistance.

• Beneficiaries who are eligible for full Medicaid benefits (~6.3 million dual eligibles) will being to receive drug benefits under Medicare rather than Medicaid in 2006.

• They will pay no premium or deductible, and no drug costs above out-of-pocket threshold.

• Below the threshold, those with incomes under 100% of poverty will pay $1 to $3 copays. Those above the poverty line will pay $2 to $5 copays.

• Beneficiaries with incomes below 135% of the poverty level and assets under $6,000/single; $9,000/couple (~5.8 million people) will receive subsidy to cover the average premium for basic coverage in their region. They will pay $2 to $5 copays with no deductible and no cost-sharing above the out-of-pocket threshold.

• Beneficiaries with incomes below 150% of the poverty level and assets under $10,000/single; $20,000/couple (~1.9 million people) will receive premium subsidies on a sliding scale. They will pay a $50 deductible, 15% coinsurance up to the out-of-pocket threshold.

• Low-income beneficiaries will have to meet both an income and asset test to receive assistance for the first time in Medicare.

Interaction with Other Coverage:
• Medicare Advantage (formerly Medicare+Choice) plans provided prescription drug coverage to 18% of non-institutionalized beneficiaries in 2001. Beginning in 2006 it will be required to offer basic drug coverage (except private fee-for-service and MSA plans). They may also offer additional drug benefits for an additional programs.

• Employer-sponsored plans assisted 34% of beneficiaries in 2001. In 2006, employers that elect to provide prescription drug benefits comparable to Part D will receive subsidies from Medicare, which will pay 28% of costs between $250 and $5,000 in drug expenses per retiree.

• Medigap plans provided supplemental coverage to 23% of all beneficiaries in 2001 and drug coverage for 7% of the total Medicare population. In 2006, Medigap insurers will not be allowed to issue new policies that include drug coverage or supplemental Part D coverage. Beneficiaries who already have Medigap drug policies may keep those policies (but could face a premium penalty should they choose to enroll in Part D at a later date). Medigap will include two new packages that provide catastrophic (non-Rx) coverage.

• Medicaid provided supplemental coverage for 12% of non-institutionalized beneficiaries in 2001. In 2006, it will no longer offer drug coverage to dual eligibles. They now have to enroll in Part D plans for their drug benefits. States will pay Medicare a share of the aggregate amount they would have spent on prescription drugs for dual eligibles if the law had not been enacted, resulting in an $88.5 billion “clawback” between 2006-2013. States may only use state dollars, not federal Medicaid matching funds, to help with cost-sharing or to cover drugs that are not on a Part D plan’s formulary.

• State Pharmaceutical Assistance Programs serving 1.3 million elderly and under-65 disabled beneficiaries in 2002, will be permitted to supplement Part D coverage.

Other Benefit Changes:
• The Part B deductible, set at $100 since 1991, will increase to $110 in 2005 and will rise by the annual percentage increase in Part B expenditures thereafter.

• The Part B premium ($66.60 in 2004) covers 25% of Part B costs and is currently uniform for all beneficiaries. Beginning in 2007, it will be higher for those with incomes over $80,000/single; $160,000/couple.

• Preventive Benefits, including an initial routine physical examination, cardiovascular blood screening tests, and diabetes screening test and services will be added in 2005.

<< Return to Senior Citizens' Page