Medicare’s New Drug Benefit: What You Should Know

Medicare's New Drug Benefit: What You Should Know

The new Medicare law that was signed into law in December 2003 makes major changes to the nation's health insurance program for people age 65+ and some persons with disabilities. The most important part of the law is a new benefit to help people in Medicare with their prescription drug costs. This assistance will go into effect in two stages.

The first stage begins in May 2004 when you can sign up for a discount card for people with Medicare to help them with some drug costs. This is a temporary program that phases out when the second stage of assistance, a Medicare drug benefit, goes into effect on January 1, 2006.

You may see this second stage of assistance called Medicare Part D. In January 2006, Medicare's new drug benefit will go into effect. People with Medicare will be able to join a drug plan. All the plans will be run by private companies. The first enrollment period is from November 15, 2005 to May 15, 2006. If you are currently enrolled in Medicare, or plan to be by January 2006, here are some important factors for you to consider:

• The drug benefit is voluntary. You do not have to sign up. However, there may be a penalty if you decide to sign up at a later time.
• You will have to pay a premium each month. The premium will likely be about $35 a month. Some plans will charge more, others will charge less.
• The plans will vary. Some plans may offer coverage that looks like the standard benefit. Others may look different, but are worth the same. Still others will include additional drug coverage. Premiums will vary based on what each plan offers and where it is offered.
• You will have a $250 deductible each year.
• After the deductible, Medicare will cover 75% of drug costs, up to $2,250.
• You will pay 25% of drug costs up to $2,250.
• After total drug costs reach $2,250, you will have to pay an additional $2,850 in out-of-pocket drug costs before Medicare will continue coverage. This is called the coverage gap, also known as the doughnut hole.
• Once your out-of-pocket drug costs, not including premiums, reach $3,600 ($250 deductible + $500 co-insurance + $2,850 coverage gap) Medicare will start paying again.
• Now, Medicare will cover up to 95% of drug costs (also called catastrophic benefit.)
1. Now, you will pay either $2 for generic drugs and $5 for brand-name drugs or 5% of the prescription drug cost, whichever is greater.
2. Drugs plans may have lists of drugs they cover. These lists are called "formularies" or preferred drug lists. The drugs will be in groups. The groups are called therapeutic classes. There will be at least one drug for each therapeutic class. There will also be an appeal process to get a drug not in the formulary.

• Late Enrollment Penalty: As with Medicare Part B enrollment, there will be a penalty for not enrolling in the Medicare drug benefit in the first six months that you are eligible. The penalty will be about 1% for each month you delay. This penalty does not apply if you lose drug coverage that you had from another source, which was at least as good as the Medicare drug benefit.

So what does this mean to the average married couple with Medicare? Consider the case of Marie and Evan.

Marie and Evan are a middle income married couple. Evan has heart disease and Marie takes medicine for arthritis. Their drugs cost $6,810 a year -- $1,960 for her, $4,850 for him. In 2006, under the Medicare drug benefit, Marie would save 44%, but Evan, with higher costs, would save only 22%. That's because he'd fall partly into the coverage gap. Much of his spending is in between $2,250 in total drug costs and $3,600 in out-of-pocket drug costs, when coverage begins again. Together, the couple would pay $4,868 out-of-pocket and save $1,942.

Out-of-Pocket Spending Counted Toward Medicare Drug Benefit:

Out-of-Pocket Spending Counted Toward Medicare Drug Benefit:

In this scenario, Marie saves more than $800 per year on prescription drugs, and Evan saves more than $1,000. Using the formula outlined in the example above, try to calculate the drug benefit you would receive under Medicare Part D.

Low Income Features

For people with low incomes, Medicare drug assistance has special features. Many people with low incomes will get extra help with their Medicare drug benefit. People with the lowest incomes will pay no premiums or deductibles, small or no copays, and will have no coverage gap. Those with slightly higher incomes will have a reduced deductible and some will have a sliding scale premium and small coinsurance.

For More Information Contact Medicare

Medicare will give you more information as the benefits start. Visit the Medicare Web site or call toll-free 1-800-MEDICARE (1-800-633-4227 or TTY 877-486-2408).
If you prefer to get help in person, there are counseling programs that can provide direct assistance.