Medicare prescription-drug coverage plan
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The new Medicare prescription-drug coverage plan doesn’t cover all of the expenses for all of the people, but it may make the difference between meals and medicine for many fixed-income retirees.
Clearly Medicare Part D is better than nothing for many of the estimated 43 million elderly and disabled Americans who are enrolled in the program. That said, Medicare’s new prescription-drug coverage will never live up to its hype as a comprehensive prescription drug plan.
In the words of Ron Pollack, executive director of Families USA, a Washington-based lobbying group that is a frequent critic of both Medicare and Medicaid, the “euphoria at the White House contrasts very vividly with the disappointment, even anger, among America’s seniors.”
Pollack said that one cause of seniors’ anger with Medicare is what he called “the bizarre and sparse drug benefit.”
But while Pollack has harsh words for the new program, its supporters contend—with some justification—that this new benefit will enhance Medicare because it will provide at least some coverage for outpatient prescription drugs, something Medicare has not done in the 40 years since it was created.
Briefly, all Medicare beneficiaries, irrespective of income, are eligible for prescription drug coverage under Medicare Part D. Medicare patients can sign up for coverage through a regional Medicare PDP or one of the 10 Medicare-approved national PDPs.
Patients will be billed a monthly premium that can cost as little as $20 a month for plans that cover brand-name and generic drugs. On top of the monthly premium, enrollees will be charged a co-pay of roughly 25% of the price of drugs. In addition to the co-pay there is a standard $250 annual deductible on covered drugs. And this covers just the first $2,250 of prescription drugs.
After the $2,250 limit is reached, the beneficiary has to pick up 100% of the tab for the next $2,850 in prescription drug expenses. This is the coverage gap, known as the donut hole, in Medicare Part D. However, coverage returns after a patient’s total out-of-pocket expenses for prescription drugs reaches an annual threshold of $3,600 ($250 deductible plus 25% of costs from $500 to $2,250, which equals $500, plus the $2,850 donut hole).
Because of the donut hole, some characterize Medicare Part D as a lot like the horse designed by a committee, which ended up as a camel. In the case of Part D, it is drug insurance coverage with a beginning and end but no middle.
But a camel can be a pretty useful animal.
Once the out-of-pocket annual threshold is reached, Part D picks up the tab for prescription drugs and this time the coverage offers some real savings because the co-payment drops to $5 for brand-name drugs, $2 for generics, or 5% of drug cost, whichever is lower.
Simple? Wait, that’s not all.
Many Medicare patients purchase Medigap insurance to help them pay deductibles or co-payments associated with hospital or physician charges (Medicare Part A and Part B), but Congress specifically barred these Medigap plans from covering the donut hole—that $3,600 in out-of-pocket expenses that is built into Part D. Patients should be made aware of this limitation.
There is, however, some relief for the estimated one-third of Medicare beneficiaries who have prescription drug coverage from their former employees. These patients are permitted to keep that coverage and sign up for Part D. So, for this subset of Medicare patients the law does allow the employer health plan to supplement the Part D coverage. But there is a caveat—when a patient enrolls in Medicare Part D, Medicare becomes the primary provider of coverage.
Of note, the Medicare drug benefit may actually prove to be the salvation of some employer plans. In recent years many employers have cut back on benefits to retirees, but included in the Medicare prescription drug law is a provision that offers subsidies to employers that continue drug benefit plans for retirees—as long as those plans have the same actuarial value as the standard Medicare Part D plan.
So, who should enroll in Medicare Part D?
One school of thought says everyone who is eligible because each enrollee will get some benefit.
Moreover, that benefit is likely to add up to more than the annual premium cost of one of the bare-bones PDP plans. For example, a plan with a $20 monthly premium will cost $240 a year. Medicare actuaries are estimating that the average benefit per enrollee will be $1,300. That is probably a high-end estimate, but even if the savings are considerably lower odds are that seniors will save more than they spend on the premium.
The key to maximizing benefits lies in the fine print found in the drug plan marketing materials that are now flowing into the mailboxes of the nation’s seniors. It is there that Medicare patients will find crucial information about the exact coverage being offered.
Plans are required by law to cover at least two drugs in each therapeutic class or category of covered Plan D drugs, which means that it is very possible that a plan may cover some but not all of a patient’s prescription drugs. For example, a PDP could offer two statins, say Pravachol (pravastatin) and Zocor (simvastatin) but not Lipitor (atorvastatin).
And it is important to note that payment for drugs not covered by the patient’s PDP, in this example Lipitor, will not be counted toward the Part D deductible—either the $250 basic deductible or the $3,600 annual out-of-pocket limit.
The Medicare regulations give plans broad discretion to design a variety of formulary options as long as they still stay within the broad two-drug parameter. That means that plans will typically cover most but not all of the top 100 drugs on the Medicare approved formulary. For example, in Alaska and New York three Cigna plans will cover 99 of the top 100 drugs, while one Coventry AdvantraRx in Alaska and New York will cover 73.
And when should patients join? Here the answer is simple—the sooner, the better.
Enrollment starts on Nov. 15 and this initial enrollment period will continue until May 15, 2006. Coverage will begin January 1, 2006, for those who sign-up by December 31, 2005. For those who sign up after December 31, 2005, coverage will start the following month, so someone who signs up on January 10, 2006 will get coverage beginning February 1, 2006.
But there is an important sticking point included in the Plan D regulations. Seniors who were eligible for coverage before May 15, 2006, but delay enrollment until after the May 15 deadline will have to pay premiums that are higher—the premium price goes up 1% per month for every month they delay. So an eligible senior who delays enrollment until August 15, 2006 will pay a monthly Part D premium that is 3% higher than those who signed on the Part D dotted line by May 15, 2006.
Next: Medicare’s Medicine Chest, the Part D Formulary
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