WealthManagement Magazine

Medicare Drug Benefit 101

IN OUR NATION'S HISTORY, there have been plenty of government programs that have choked on their own red tape. So it's noteworthy when an expert, who studies the minutia of government mandates, claims that he's identified a federal program that rises above all others in complexity. The new Medicare drug benefit plan, suggests Robert Hayes, the president of the nonprofit Medicare Rights Center, is

IN OUR NATION'S HISTORY, there have been plenty of government programs that have choked on their own red tape. So it's noteworthy when an expert, who studies the minutia of government mandates, claims that he's identified a federal program that rises above all others in complexity.

The new Medicare drug benefit plan, suggests Robert Hayes, the president of the nonprofit Medicare Rights Center, “is the single most convoluted benefit program in American history. There may be ways that it could be even more consumer unfriendly, but I haven't found them yet.”

Congress and President Bush agreed to create a drug benefit plan in 2003 — the biggest expansion in Medicare since it was created 40 years ago. Is it a noble plan to help the elderly pay expensive drugs? Or just another costly new entitlement engineered by special interests and greedy politicians? Keep your opinions to yourself and learn it. It's quite likely that at least some of your older clients will have trouble navigating their dozens of choices. Younger clients who are worried about their elderly parents may also turn to you. If you understand the basics of this new federal program, you can provide a great service to your clients — perhaps even save them money in premiums.

One way to begin your own education is by familiarizing yourself with answers to some of the most common questions about the voluntary drug plan. The answers come from the Centers for Medicare & Medicaid Services, the Medicare Rights Center and The Henry J. Kaiser Family Foundation.

Will all the drug plans provide standard, uniform Medicare drug coverage?

No. The plans, which are offered by a wide variety of private companies, aren't clones. Each one provides its own lineup of drugs and participating drugstores, as well as different monthly premiums, deductibles, co-insurance and benefits. What's more, the number and types of plans vary by state. In California, for instance, 18 organizations have rolled out 47 different stand-alone drug plans. In contrast, 11 companies will offer residents of Alaska 27 different options.

How much will monthly premiums for drug coverage cost?

The costs for what's being called Medicare Part D will depend upon where someone lives and the plan he or she chooses. Medicare, however, has suggested that the average monthly premium should cost around $32 a month in 2006. But some programs will offer premiums that cost less than $10, while others are dramatically more expensive. In New York, for example, premiums range from $4 to $85. Premiums are expected to rise annually.

As a benchmark, Medicare envisions that the basic plan will require a participant to meet a $250 yearly deductible and then pay 25 percent of covered drug costs between $251 and $2,250. A participant will foot all the costs from $2,251 to $5,100. This gap in coverage is being called the doughnut hole. Once medication costs surpass $5,100, a participant would generally pay 5 percent of the tab. Keep in mind that these are ballpark figures. Each plan has its own fee schedule.

When can someone sign up for the new drug benefit?

The enrollment period for current Medicare recipients runs from Nov. 15 through May 15, 2006. Individuals who want coverage to start on Jan. 1, 2006, should sign up by Dec. 31. Individuals can enroll through Medicare's Web site (www.medicare.gov) or by calling 800-MEDICARE. The elderly can seek help from their State Health Insurance Assistance Program, which exists in every state to help Medicare beneficiaries with their health insurance choices.

Is there any rush to enroll in the program?

Don't let your clients procrastinate: While enrolling is voluntary, most individuals will have to pay a monthly premium penalty if they join after they're first eligible. Premiums will automatically increase at least 1 percent a month after a Medicare recipient's initial enrollment period expires. So, for example, if someone delays signing up for two years, his premium will be 24 percent higher. And the tardy enrollee will be stuck with a higher premium for as long as he stays in the program.

What should people who have retiree drug coverage through their old employer do?

Before making any decision, retirees should find out if their old employers will continue offering health benefits next year. They also need to determine if their workplace coverage is considered “creditable,” which means it's at least as good as the new federal program. Retirees will receive letters from their old workplaces with this information.

Should a retiree keep Medigap insurance coverage?

Because the government heavily subsidizes Medicare Part D, retirees can receive better drug coverage with the new program at a lower premium than they would through a Medigap plan.

Can plans drop coverage of certain drugs?

Yes. Plans will be allowed to dump drugs on their lists as long as they give 60-days notice. Unfortunately, it won't be as easy for recipients to ditch a plan if it eliminates the drugs they need. Individuals can switch plans once a year during a period from Nov. 15 through Dec. 31.

Who will benefit from the plan?

Clearly the huge winners will be the elderly poor. They will pay virtually nothing for their drugs. To be eligible, seniors have to be cash poor, but they won't hurt their chances if they're house rich. A home and a car aren't counted in the eligibility calculations.

It's also an easy call for the affluent. They will probably want to participate because it protects them from runaway drug costs in the future. The benefit is essentially an insurance program.

Where can I learn more about the plan's options?

For more, download Medicare Drug Coverage 101: Everything You Need to Know About the New Medicare Prescription Drug Benefit at the Medicare Rights Center's Web site at medicarerights.org. See also the Kaiser Foundation (kff.org).

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