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By: Barbara A. Isenhour and Sean R. Bleck
The new Medicare prescription drug benefit will go into effect on January 1,
2006. The
following is a brief summary of the benefit.
Overview
Medicare Part D will offer prescription drug plans (PDP) through private
insurance
companies. There will be 10 national plans offered, including AARP, and some
regional
plans. We do not know yet what plans will be offered in the state of
Washington or what
the premium will be for each plan. The estimated cost for the premium will
vary with the
plan but the current estimate for the average PDP is approximately $37 per
month. The
premium cost is expected to increase annually.
Basic Benefit
PDPs will vary but all plans will have a $250 deductible the beneficiary must
pay out of
pocket for covered drugs each year. After the annual deductible is met, the
beneficiary
pays 25% of the cost for covered drugs and the PDP pays 75%, up to $2250 in
total drug
costs. Then the beneficiary enters what is being referred to as the "doughnut
hole" where
s/he is responsible for the full cost of prescriptions while continuing to pay
the monthly
premium. Once the beneficiary's total out-of-pocket costs for formulary drugs,
including
the deductible but not the premium, equal $3600, the beneficiary is
responsible for 5% of
drug costs and the drug plan pays the remaining 95% of costs.
The $3600 amount will be indexed to increase annually. On January 1 of each
year the
beneficiary starts over again at zero.
The following is a simple illustration of how the basic PDP benefit will
work:
Mrs. Lee has 3 prescription drugs that cost her $700 per month total. In
January she will
meet her deductible in the first month of $250. She will then pay 25% of her
remain drug
costs for January ($112.50) and the PDP will pay 75% ($525). In February and
March
Mrs. Lee will pay 25% of her drugs ($175/mo) and the PDP will pay 75% ($525).
In
April Mrs. Lee will hit the doughnut hole of $2250 of total drug costs. At
that point she
will have to pay for the next $2,850 of drugs out of her pocket. In August she
will hit the
$3600 amount she paid out of pocket since the beginning of the year (including
her $250
deductible). At that point she will qualify for the catastrophic coverage
where she pays
5% of the cost of her drugs ($35) and the PDP pays 95% ($665).
Date Mrs. Lee PDP Trigger
Jan. deductible $250
Jan. balance $112.50 $337.50
Feb – Mar. 25%/75% $175 $525
April 25%/75% $37.50 112.50 $2250 total drug costs since January
April (doughnut hole) $550
May -July (doughnut hole) $700
August (doughnut hole) $200 $3600 Mrs. Lee paid for drugs
Remainder August 5%/95% $30 $570
Sep-Dec. 5%/95% $35 $665
This illustration assumes that Mrs. Lee’s drugs are covered under her plan and
her plan
does not have a higher tier of cost sharing for the drugs she uses.
PDPs will be allowed to vary the above basic benefit as long as the offered
plan is
"actuarially equivalent" to the basic benefit described above. The expectation
is that
many plans will offer tiers of cost sharing for various drugs to encourage the
use of less
expensive, generic drugs. Plans may require a high amount of cost sharing for
very
expensive or rare drugs. Cost sharing may also vary depending upon which
pharmacy
the beneficiary uses. Some plans will have a network of pharmacies with a
preferential
cost sharing amount for the beneficiary.
Covered Drugs
It is not clear yet which drugs will be covered by the PDP. Some drugs are
excluded by
statute including barbiturates, benzodiazepines (such as Xanax and Valium),
weight
loss/weight gain drugs, and over-the-counter drugs that are frequently used by
older
people. PDPs can determine which drugs the plan will cover as long as they
include at
least two drugs in each category or class of drugs.
PDPs must cover all or substantially all drugs in six categories: anti-cancer,
anticonvulsants, antidepressants, antipsychotics, immunosuppressant, and
HIV/AIDS
drugs. If a drug is not covered by the plan, then the beneficiary must pay for
the drug out
of pocket with no insurance co-payment and the drug cost will not count
towards the
deductible or towards reaching the out-of-pocket spending limit to trigger the
catastrophic coverage.
PDPs can have a different cost sharing tier for different drugs. The plan can
also require
prior approval from the insurance company for certain drugs to discourage the
use of
more expensive drugs. In choosing a plan it will be very important for the
beneficiary to
see what drugs are included in the plan and whether there is a higher cost
sharing tier for
the particular drug.
Information on which drugs are going to be included in each offered plan will
not be
available until October. At that time information on the covered drugs should
be
available through the Centers for Medicare and Medicaid Services (CMS) at
www.medicare.gov.
Enrolling in Part D
The Medicare Prescription Drug program is optional for most people. The
initial
enrollment period will be from November 15, 2005 through May 15, 2006. If a
beneficiary delays enrollment until after that date there will be a higher
premium
assessed. The penalty for late enrollment will be 1% of the premium for every
month of
delayed enrollment. So if a person waits two years after the initial
enrollment period to
select the Part D drug plan, the premium would be 24% higher than if the
beneficiary had
enrolled during the initial enrollment period. No penalty will be assessed if
a beneficiary
delays enrollment and had "creditable" prescription drug coverage under an
existing
Medigap policy or employer plan.
Part D and Medicaid
Some people are eligible for Medicare but also qualify for Medicaid to help
with
prescription drugs. Those people are referred to as "dual eligible". As of
January 1,
2006 Medicaid will no longer cover medications for those dual eligible
individuals.
Instead they will be automatically enrolled in a PDP and receive assistance
with the
premium depending upon their income.
Beneficiaries with income below 100% of the Federal Poverty Level (FPL) will
pay $1
for generic drugs and $3 for non-generic drugs. Beneficiaries with income
below 135%
of the FPL will pay $2 and $5 respectively.
Assistance for Low Income Families
Some people who are not eligible for Medicaid will still qualify for
assistance with
paying the Part D monthly premium, co-payments and deductibles. Eligibility
for
assistance will depend upon family size, monthly income and assets. For a
single person
to qualify for assistance gross monthly income must be less than $1,196.25.
For a
married couple, their income must be less than $1,603.75. Countable assets for
a married
couple must be less than $11,500 for a single person and $23,000 for a married
couple.
Exempt assets include the family home, one vehicle, household furnishings,
life
insurance and pre-paid burial plans.
Additional Information on Medicare Part D
For a good graphic illustration of how Medicare Part D will work to go to
http://fortress.wa.gov/dshs/maa/MedicareDrugs/GraphicPortryalofDonutHole.pdf
Information from the Washington State Insurance Commissioner can be found at
http://www.insurance.wa.gov/consumers/medicare/MedicaresNewPrescriptionDrugProgr
am-PartD.asp
Information from the Centers for Medicare and Medicare Services can be found
at
http://www.cms.hhs.gov/mmu/default.asp
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