HMOs are First to Benefit.

While the major portions of the recently enacted Medicare Act don't take effect until 2006, several important provisions will become effective sooner.  The first beneficiaries of the new law will be health maintenance organizations (HMOs), doctors and hospitals who will start receiving increased payments in 2004.

The new law reverses a 4.5 percent pay cut that was scheduled for 2004 for Medicare doctors and substitutes a 1.5 percent increase in 2004 and 2005.  Hospitals will not experience fee cuts in fiscal year 2004 and will be protected from cuts in the next three years if they submit quality data to Medicare. (See article: "Hospitals to Receive Bonus for Quality" in the July 23, 2003 Elder Care Law Alert). Rural providers will receive additional payments. 

$1.3 billion is earmarked in 2004 and 2005 for HMOs that participate in Medicare.  The new payment rates will be set by the Secretary of Health and Human Services (HHS) in January.  In recent years, many HMOs have discontinued their participation in Medicare, leaving many seniors scrambling for coverage and discouraging proponents of privatization. HMOs, which limit seniors' choice of doctors and other health providers to those on a list, are a key component in the expanding role of private insurers in Medicare. 

The increased payments to Medicare HMOs are intended to encourage them to stay with Medicare, according to Tommy Thompson, current Secretary of HHS. With the new law, HMOs will have some options as to how they use their increased payments; they will be able to reduce premiums for enrollees, improve benefits, offset increases in payments to doctors and hospitals, or simply retain them for future use. 

Opponents of the new Medicare law cite the increased payments to HMOs as evidence of the Bush Administration's strong bias towards private insurers, despite their higher costs.  According to Robert Berenson, a health care expert with the Urban Institute (http://www.urban.org/), it is estimated that by 2006 the government will be paying HMOs 25 percent more than the government would pay under traditional Medicare for the same beneficiaries.

Health Savings Accounts.

Also in 2004, Americans with high-deductible medical insurance policies will be able to put thousands of dollars per year into tax-free health savings accounts.  Over $6 billion has been allocated to allow individuals with health insurance deductibles of over $1,000 (or $2,000 for couples) to place an amount equal to their annual deductible in these accounts -- up to $2,600 a year for individuals and $5,150 a year for families.  Though this benefit is not intended primarily for seniors, people age 55 to 65 can make additional contributions and build a medical nest egg.

Money deposited in health savings accounts can be invested and then withdrawn tax-free to pay for insurance premiums and other health costs. The account will stay with the owner for his or her lifetime and upon death any unused portions can be transferred tax-free to a spouse.  These accounts present a significant tax savings opportunity, especially for individuals in higher tax brackets.  

Medicare preventive benefits coverage will expand in 2005.  At that time Medicare will include coverage of services such as a one-time initial preventive physical exam within 6 months of when a person with Medicare first becomes enrolled in Medicare Part B, screening blood tests for early detection of cardiovascular diseases, and diabetes screening tests for people at high risk.

The Drug Discount Card.

The first significant impact of the new law for many Medicare beneficiaries will be a short-lived drug discount card that should be available by May or June 2004.  While the majority of seniors won't receive drug benefits from the new law until 2006, the temporary prescription drug discount cards may help some seniors, especially those with low incomes who do not qualify for Medicaid.    

The rules for the operations of the drug card program were issued on December 10^th. The cards will be issued by private companies including insurers, retail pharmacies, Medicare+Choice plans, and pharmaceutical benefit managers.  The private issuers will set an enrollment fee, which will not exceed $30 per year and cards meeting federal standards will receive the endorsement of Medicare. 

Discounts will be determined by the companies, not by Medicare.  Each private issuer will negotiate discounts with drug companies and pass part of the savings on to card-holders.  The government estimates that consumers participating in the card program will be able to save about 10 to 15% of their total prescription spending.

Consumers will most likely be confused with the many cards available.  There will be at least two Medicare-approved cards and likely many more.  To make the choice even more complicated and stressful, participants will be able to choose only one card.  Since cards put out by different issuers are likely to offer different discounts for different drugs made by different companies, consumers will have to compare cards for the one that offers the best discounts based on their individual prescriptions and anticipated drug needs.  Once consumers choose a card, they will pretty much be locked in, with only one switch permitted--at the end of 2004.

Card issuers will be allowed to establish a formulary (a list of recommended drugs).  But, if an issuer uses a formulary, it will be required to offer discounts on at least one drug in each of more than 200 drug categories.  Issuers will also be allowed to change their discounts weekly, but the government will try to monitor price increases as a way of preventing price gouging and "bait and switch" tactics.  Tom Scully, outgoing administrator of CMS, said pricing information will be posted and updated on the Medicare website (www.medicare.gov) and also will be available from the Medicare help line at 1-800-Medicare.

The drug discount card is voluntary.  It will be available to any Medicare beneficiary who is enrolled in Part A or Part B, except those entitled to Medicaid coverage on outpatient drugs.  Officials estimate that only about 7.2 million of the 40 million Medicare recipients will participate in the cards. 

Low income individuals who are not receiving Medicaid are the ones likely to receive the greatest benefit from the discount card plan.  Medicare beneficiaries with family incomes of less than 135 percent of the federal poverty level ($12,123 for individuals and $16,362 for couples this year) can qualify for a subsidy of up to $600 per year.  The full $600 credit will be available during 2004, even though the discount cards will not be available until near mid-year.  For those who join late, this credit may be reduced. 

Consumers who qualify for the $600 subsidy will be able to use it to purchase approved prescription (but not over the counter) drugs. To qualify, beneficiaries may not have drug coverage from Medicaid, Tricare, or other private or government sources.

Early next year, Medicare will send letters to every enrollee to inform them about the availability of these discount cards. Individuals will be able to apply for the discount card program or for the $600 credit by filling out a Medicare form at home and mailing it in.  No visit to a government office will be required.  Mr. Scully has stated that the government intends to use IRS and Social Security records to verify participant's income levels.         

The drug discount card program will expire on January 1, 2006 when the new Medicare prescription drug benefit becomes available.  The drug card regulations were published in the Federal Register on December 15, 2003 .  To access this information online, go to http://www.gpoaccess.gov; then choose Federal Register under "Executive Resources"; then search volume 68 (2003) for "drug discount card."

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