The
Medicare Act of 2003, Part 2:
An
Outline of the Prescription Coverage which begins in 2006
Written By: Attorney
Jeffrey A. Marshall
, CELA*
The Elder Care Law Alert (ECLA) is providing readers
with an ongoing analysis of the major provisions of the new Medicare Act
(The Medicare Prescription Drug, Improvement, and Modernization Act of
2003). The Act adds a
Medicare prescription drug benefit, replaces the Medicare+Choice program
with a new program called "Medicare Advantage," and makes many other
changes that will influence the health care provided to seniors in
America
. A recent Elder
Care Law Alert covered discount cards and other changes that will take
effect before 2006. This
issue will give an overview of the prescription drug benefit that will
begin in 2006.
Private
Prescription Drug Plans: PDPs and MA-PDs
Beginning
in 2006, all Medicare beneficiaries who are entitled to Part A or enrolled
in Part B will be able to sign-up for optional Medicare authorized
prescription drug coverage. About
41 million Americans will have this option.
The drug coverage will not be provided directly by Medicare, but
will be offered by private companies who will be subsidized by the
government.
Medicare recipients will be able to obtain Medicare
drug coverage through one of two paths:
(1) Beneficiaries who are
enrolled in a Medicare Advantage (MA) Plan that offers prescription drug
coverage (an MA-PD plan) will get their coverage through that plan.
Medicare Advantage is the new name the government is giving to
Medicare managed care plans (HMOs/PPOs); they will be the successors to
the current Medicare+Choice plans and will operate under Medicare Part C.
(2) Beneficiaries who
remain in traditional Medicare, or whose managed care plan does not offer
drug coverage, will be able to sign up for a stand-alone prescription drug
plan (PDPs), which will operate under the new Medicare Part D.
All PDP and MA-PD plans must offer at least standard
basic drug coverage or its actuarial equivalent.
In any geographic area that lacks at least two plan options, the
government will offer standard benefits through a fall-back plan.
The initial enrollment period will commence on
November 15, 2005
and coverage will begin on
January 1, 2006
. Once individuals select a
plan, they will generally be locked into it for the year.
Consumers will need to choose among the different
plans available in their geographic region.
Plans will be able to have different formularies (lists of covered
drugs) and will be able to charge different premiums and co-payments so
long as they are actuarially equivalent to a standard plan.
While plans will be required to meet government guidelines by
providing drugs in each established "therapeutic class," each plan may
vary as to the specific drugs it covers.
Seniors will have to shop carefully to ensure that the plan they
choose provides the best coverage for the specific drugs they are taking.
In a much criticized provision, the Medicare Act of
2003 actually prohibits the Government from using its immense bargaining
power to negotiate discounts on drug prices from pharmaceutical companies.
Instead, each individual plan will have to use its more limited
bargaining power to negotiate discounts from drug manufacturers.
The Act also enhances the potential for inflation in drug prices by
restricting the re-importation of drugs from
Canada
.
Standard
(Basic) Part D Coverage
Medicare
coverage will apply to drugs, biological products and insulin that may be
dispensed only by prescription and that would normally be covered by
Medicaid. Excluded are drugs
that are covered under Medicare Parts A or B, those excluded by Medicaid,
and non-prescription drugs. Only
drugs that are chosen by the consumer's chosen plan for inclusion in its
formulary will be covered.
In 2006, the consumer will be solely responsible for
the first $250 of covered drug costs (the deductible). The plan
will then pay 75% of the next $2,000 in drug costs. $2,250
is the initial coverage limit.
There is no coverage between $2,250 and $5,100 (the so-called "doughnut
hole"). This means that
the consumer will receive no additional insurance reimbursement until he
or she has paid a total of $3,600 out of pocket for drugs that are covered
by the plan. If the consumer
eventually incurs $5,100 in total covered annual drug expenses, the catastrophic
aspect of the coverage kicks in. After
that point, the insurance picks up 95% of the covered costs.
Drug plans will be authorized to vary from this basic
coverage so long as they offer a benefit package that is deemed to be
"actuarially equivalent" (of the same value).
The basic insurance thresholds will be indexed to the per capita
growth in Part D spending. As a result, it is estimated that by 2013 the
deductible will rise to $445 and the initial coverage limit will increase
to $4,000.
Drug plans will be independently permitted to develop
formularies of the drugs they will cover. They will be allowed to change
the specific drugs that will be covered by their plans from time to time.
The existence of differing formularies may make it difficult for
seniors to determine which plan will provide them with the best coverage.
However, once consumers have chosen a plan, they must stick with
that plan for the entire year. Consumers
whose medication needs changed during the year may easily be stuck in a
plan that provides poor coverage. Each plan will be required to have an
appeal process, but doctors are precluded from filing an appeal on a
patient's behalf.
Drug costs count towards the coverage thresholds only
if paid by the plan participant (or by another family member on behalf of
the participant), or paid by the subsidy for low income individuals (see
below), or by a state pharmaceutical assistance program.
This means that any costs for which the participant is reimbursed
by insurance or otherwise will not count.
The law also specifies that costs the consumer incurs
for drugs which are not included in the plan's formulary do not count
towards the catastrophic coverage threshold.
So, consumers whose plan does not include their drug of choice will
feel enormous pressure to switch to a covered drug.
Premiums
Persons desiring to enroll in a PDP plan will have to
pay a monthly premium with an estimated average cost in 2006 of about $35
per month. The actual premium
amount may vary by plan. This
monthly fee is in addition to the Part B premium, so seniors who enroll
will have over $100 per month in Medicare premiums deducted from their
social security. The Part D premium is intended to represent, on average,
26% of the cost of the benefit being provided.
Late enrollment penalties may apply to some individuals who delay
their enrollment.
Beneficiaries will be able to pay their monthly
premiums directly to the PDP or MA-PD plan or have them electronically
transferred. However, most
seniors will probably choose to have the premiums deducted from their
monthly social security payment. Premiums
go to the plan, not to the government.
Premiums can be waived for some beneficiaries with
low incomes (see below).
Some Coverage/Cost Examples
Here are examples of how the Part D coverage and out
of pocket costs should work for some individuals in 2006:
The Average Senior:
According to the Kaiser Family Foundation, the average senior will
have $3,160 (about $263 per month) in annual drug expenses in 2006.
If that average senior enrolls in a PDP, his or her out-of-pocket
cost could be reduced to $2,080 ($1,660 plus $420 in premiums), if only
drugs which are covered are purchased. This could result in savings of
$1,080 or about 34% of the covered drug costs.
The Low Drug Expenditure Senior:
Due to the premiums, deductibles, and co-pays,
seniors with low drug costs of under $800 per year will actually end up
spending more if they enroll in a Part D plan.
However, it is likely that most seniors will elect to participate
in the drug coverage since it will give them the assurance of having
catastrophic coverage in the event of an unforeseen illness.
The High Drug Expenditure Senior:
An individual with $500 a month ($6,000 per year) in
covered prescription drug costs will end up spending $4,065 ($3,645 plus
$420 in premiums). This savings of $1,935 amounts to approximately 32% of
covered drug costs.
Seniors with truly catastrophic drug costs will
potentially benefit greatly from Part D coverage.
In 2006, seniors will have to pay $3,600 for their first $5,100 of
covered prescriptions plus the monthly premiums, estimated at $420 for the
first year. After that, Medicare will cover 95 percent of the cost of each
prescription. Thus, an
individual with $900 a month ($10,800 per year) in covered drug costs will
end up spending $4,305 ($3,885 plus $420 in premiums) and achieve a
savings of $6,595 or 61%.
Subsidies
for Medicaid and Low Income Recipients
Medicare
recipients with low incomes and limited resources may qualify for
additional assistance with the cost of prescription drugs.
Under complicated rules, seniors and other Medicare beneficiaries
who qualify can have their monthly drug premiums waived, cost sharing
requirements reduced, and coverage provided for the doughnut hole.
The law establishes a number of subsidized categories
for low income Medicare beneficiaries.
For ease of understanding, it is helpful to break these down into
two major categories: dual eligibles and non-dual eligibles.
Each of these major categories has three sub-categories.
For purposes of Medicare Part D, dual eligibles are individuals who
qualify for both Medicare and full Medicaid.
The dual eligible category apparently does not include persons who
are receiving Medicaid under a Section 1115 waiver, like home care under
the PDA 60+ Waiver program.
Dual Eligibles.
The following sub-categories apply (in 2006) for dual eligibles
(DE) who enroll in Medicare Part D:
DE sub-category 1.
Dual eligibles who are Institutionalized: pay no premium, no
deductible, no co-payments, and have no doughnut hole gap in coverage.
DE sub-category 2. Dual eligibles who are not
institutionalized and who have incomes of up to 100% of poverty ($8,980
for an individual and $12,120 for a couple in 2003): pay no premium, no
deductible, have no doughnut hole gap in coverage and pay co-payments of
$1 for preferred (e.g. generic) drugs and $3 for other covered drugs.
Co-payments are indexed to drug inflation and cease when the
participant reaches the catastrophic threshold ($3,600 out of pocket in
2006).
DE sub-category 3.
All other dual eligibles pay no premium, no deductible, have no
doughnut hole gap in coverage and pay co-payments of $2 for preferred
drugs and $5 for other covered drugs.
Co-payments are indexed to drug inflation and cease when the
participant reaches the catastrophic threshold ($3,600 out of pocket in
2006).
There is no asset (resource) test for dual eligibles.
Existing Medicaid coverage will end for most drugs
for "dual eligibles." Dual eligibles
will have to rely on their Medicare drug benefit, even if the
Medicare formulary is more restricted and their preferred drugs are not
covered. Due to this
potential for more limited formularies under Medicare, drug coverage may
actually be reduced for those who previously had full coverage under
Medicaid.
Non-Dual Eligibles.
The new law institutes both income and asset ceilings for non-dual
eligibles who participate in Part D. The following sub-categories apply
(in 2006) for non-dual eligibles (NDE) who enroll in Medicare Part D:
NDE sub-category 1.
Non-dual eligibles who have family incomes of less than 135 percent
of the federal poverty level ($12,123 for an individual and $16,362 for a
couple in 2003) and assets of under $6,000 individual and $9,000 couple:
pay no premium, no deductible, have no doughnut hole gap in coverage and
pay co-payments of $2 for preferred drugs and $5 for other drugs.
Co-payments are indexed to drug inflation and cease when the
participant reaches the catastrophic threshold ($3,600 out of pocket in
2006).
NDE sub-category 2.
Non-dual eligibles who have family incomes of between 135 percent
and 150% of the federal poverty level and assets of under $10,000
individual and $20,000 couple: pay a sliding scale premium, a $50
deductible, have reduced co-payments, have no doughnut hole gap in
coverage and pay co-payments of $2 for preferred drugs and $5 for other
drugs. Co-payments are
reduced when the participant reaches the catastrophic threshold ($3,600
out of pocket in 2006) to $2 for preferred and $5 for other covered drugs.
NDE sub-category 3.
Non-dual eligibles who do not fall into any other categories.
These remaining Part D enrollees will be subject to the
deductibles, co-pays and doughnut hole which are described under standard
(basic) Part D coverage above.
Eligibility determinations for low income subsidies
will be made under the state Medicaid plan (by the Department of Public
Welfare) or by the Commissioner of Social Security. Income and resources
will be determined using Supplemental Security Income (SSI) rules.
Resource levels will be indexed to the Consumer Price Index in
years after 2006. Eligibility
for a subsidy begins in the month the individual applies for the subsidy.
Appeals from denials will be allowed, utilizing the procedures
already established for Medicaid appeals for determinations made by the
state Medicaid agency and Social Security procedures for determinations
made by it.
Prior to the Medicare Act of 2003, with minor
exceptions, Medicare was not "means tested." Everyone had the same
premiums, co-pays and deductibles and everyone received the same benefits.
Now, financial criteria will come into play in terms of premiums
and co-payment requirements. The
addition of financial eligibility criteria to Medicare Part D makes it
look much more like Medicaid. This
means testing will add significantly to Medicare's complexity and the
difficulty participants will encounter in obtaining the benefits to which
they are entitled. It will
also provide an added incentive for seniors to impoverish themselves
through gifts or other techniques in order to protect their assets from
health care costs.
Effects
on Medigap Insurance Policies
In
order to encourage seniors to be cost conscious in using prescription
drugs, the Medicare Act seeks to ensure that most seniors will feel some
financial pain when they fill a prescription.
Thus, the law precludes consumers from purchasing Medicare
Supplement ("Medigap") policies that would pay for their drug
deductibles or co-payments, or cover the consumer for "doughnut-hole"
costs.
The law also prohibits the sale, after
January 1, 2006
, of Medigap policies H, I, and J (which provide some prescription
coverage) except to persons who already owned those policies on that date.
If a consumer retains a pre-existing Medigap policy that includes
prescriptions, the Medigap coverage will be automatically amended to
eliminate drugs when the consumer enrolls in a Part D plan.
The consumer who delays enrolling in Part D may incur a late
enrollment charge.
In addition, in 2006 two new Medigap policies will be
offered which will cover some of the cost-sharing that exists under
Medicare Parts A and B. The
new Medigap policies will not cover prescription drugs.
Effects
on PACE/PACENET
Pennsylvania
has recently revised and expanded its state-financed pharmaceutical
assistance programs for seniors. (For
a discussion of the changes to PACE/PACENET see the December 18, 2003 Elder
Care Law Alert at http://www.paelderlaw.com/drugdiscount.html.)
How state drug plan benefits will integrate with
Medicare Part D plans is not completely clear at the present time. It may
be advantageous for some seniors to participate in both PACE and the
Medicare drug benefit. Any
payments made by PACE for Medicare covered drugs will likely count towards
the consumer's out-of-pocket thresholds for initial and catastrophic
coverage. However, the
Medicare Act allows MA-PD and PDP plans some authority to limit the
benefits provided by PACE if the state program would negatively impact the
cost-effectiveness of the plans.
It is likely that
Pennsylvania
will need to revisit its PACE/PACENET rules before the Medicare benefit
takes effect in 2006.
To
subscribe or unsubscribe to the Elder Care Law Alert,
simply
send your request to:
webmail@paelderlaw.com
Does
Your Club Or Organization Need A Speaker?
If
you are interested in having an attorney or geriatric planning specialist
from
The
Elder Law Firm of Marshall & Associates speak to your group, or at an
upcoming event, please contact
our
Public Education Coordinator, Melissa
Bottorf
at
mbottorf@paelderlaw.com
or 1-800-401-4552
*Attorney
Marshall
is certified as an
Elder Law Attorney by the National Elder Law Foundation under
authorization from the Pennsylvania Supreme Court
© 2000-2005
Marshall & Associates www.paelderlaw.com
