Information current as of 8/11/05
Medicare Drug Coverage 101
1. What is the new Medicare Drug Benefit?
Starting January 1, 2006, Medicare will begin offering coverage for prescription drugs under a new part of Medicare (Part D). Private companies will provide the coverage. Medicare Part A covers hospital and other inpatient services. Part B covers doctor visits and other outpatient services, including durable medical equipment. Part C, most commonly known as Medicare Advantage (previously Medicare+Choice), makes available Medicare-covered health care services through a Medicare private health plan, such as an HMO, PPO or PFFS plan.
2. How is the Medicare drug benefit different from the Medicare-approved discountdrug cards?
The Medicare drug benefit and the Medicare-approved discount drug cards are two separate programs. Unlike the Medicare-approved discount drug cards, which offer some discounts, the Medicare prescription drug benefit offers insurance coverage. The cards may help you save on your drug costs until the Medicare prescription drug benefit (Part D) begins in 2006. If you have one of these drug cards, you can use it until your Medicare drug coverage begins or, if you decide not to enroll in the Medicare drug benefit, until May 15, 2006. In addition, unlike with the Medicare-approved discount drug card, you may have to pay a premium penalty if you do not enroll in the Medicare prescription drug benefit when you first become eligible. If you currently have drug coverage that is at least as good as Medicare’s you can delay enrollment without a premium penalty (see question 13).
3. Who can get Medicare prescription drug coverage?
Anyone who has Medicare Part A and/or Part B can get Medicare prescription drug coverage(Part D).
4. How can I get Medicare prescription drug coverage?
The Medicare drug benefit will only be available through private drug plan plans. There are two types of Medicare private drugs plans (Part D plans):
- Stand-alone prescription drug plans (PDP). “Stand-alone” plans only offer prescription drug coverage. You can continue to get all your other medical services (such as doctor visits, hospital stays) through Original Medicare (or through some PFFS plans if they do not offer drug coverage).
- A Medicare private health plan (like an HMO, PPO or PFFS). You can join or remain in a Medicare private health plan (Medicare Advantage) that provides all your Medicare-covered services, including prescription drug coverage.
Note: If you are in a Private Fee-for-Service (PFFS) plan or a Medicare cost plan that does not offer drug coverage, you can enroll in a stand-alone prescription drug plan. If you are in an HMO or PPO you must receive all of your medical and drug coverage through that plan.
5. Will I have a choice of Medicare private drug plans?
Yes, you will have at least two Medicare private drug plans to choose from in your area. At least one of the two must be a stand-alone prescription drug plan (PDP). Medicare indicates there will be several plans in most areas. All companies that offer Medicare private drug plans must offer at least one plan that provides same level of coverage as the Medicare’s basic prescription drug coverage (see question 6).
6 . Will Medicare private drug plans offer standard, uniform Medicare drug coverage?
No. The 2003 Medicare law outlined a plan that will be used as the standard for the overall value a plan must offer in order to be approved as a Medicare private drug plan. However, you may never see a plan exactly like the basic plan outlined in the law. Plans can structure their benefit differently as long as the overall value is at least as good as the Medicare basic plan. They can also offer better coverage, for which they will likely charge a higher premium. According to the basic plan you would pay:
- The first $250 of your drug costs for covered drugs each year (deductible);
- Coinsurance or co=pays worth 25% of the cost of covered drugs between $251 and $2,250;
- 100% of the cost of covered drugs between $2,251 and $5,100; and
- 5% of the cost of covered drugs above $5,101—catastrophic coverage (or a co-payment of $2 for covered generics/preferred drugs and $5 for covered brand-name drugs, which ever is greater).
Under this plan, you will have to reach $3,600 in out-of-pocket costs in 2006 before you can receive catastrophic coverage.
You may get additional help to pay for your out-of-pocket costs if your income is limited (see questions 19 through 46).
7. Are there any criteria Medicare private drug plans must meet?
Yes. While companies have great flexibility to design their own plans, there are some criteria they have to meet. For example:
- The overall value of the drug coverage must be the same or greater than the basic plan outlined in the law (see question 6).
- The annual deductible cannot be more than $250 in 2006.
- Catastrophic coverage must be at least as good as it is under the plan outlined in the law.
- Plans must cover at least two drugs in each drug class in their formulary (list of covered drugs—see question 62.)
- Plans must cover all or substantially all drugs in six categories: antidepressants, antipsychotics, anticonsulvants, antiretrovirals (AIDS treatment), immunosuppressants and anti-cancer.
- Plans must have a process in place for members to request exceptions to the plan’s formulary if a non-covered drug is medically necessary (see question 69).
- Plans must have a network of pharmacies that meets federal standards for convenient access.
- Plans must make information about their pharmacy network and formulary easily available (some information is only required upon request—see question 66.)
- Plans must have a Medicare-approved transition process for new members whose condition has been stabilized on medications that are not on the plan’s formulary (see question 69).
8. How much will my premium be for the new Medicare drug benefit?
In addition to your Part B premium, you will have to pay a monthly premium for the Medicare prescription drug benefit (Part D). Medicare is currently estimating that the average national premium will be $32.20 a month ($386.40 a year) in 2006, but what you pay could be more or less than that amount. What you pay will vary depending on where you live and which plan you choose. Premiums will likely increase every year.
You can choose to have the premium taken out of your monthly Social Security check (in addition to your Part B premium) or you can pay it directly to the company.
If your income and assets are low, you may have no monthly premium (see questions 19–46).
9. How much will I have to pay for my drugs with the Medicare drug benefit?
How much you pay for your drugs will depend on the plan you choose. Each plan has a great deal of flexibility in how it designs its prescription drug coverage.
In general, under any Medicare private drug plan, you will have to pay a monthly premium, an annual deductible (no more than $250 in 2006) and varying amounts of coinsurance, depending on the total costs of the drugs you buy. In addition, you will likely have to pay the full cost of your drugs at some point (coverage-gap). (See question 6.)
After you have spent a maximum in out-of-pocket costs for covered drugs ($3,600 in 2006), your costs will go down significantly (catastrophic coverage).
Note: The cost of any drugs not covered by your Medicare private drug plan will not count toward your out-of-pocket maximum.
You may get help paying for your out-of-pocket costs if your income and assets are low (see questions 19 through 46).
10. What is catastrophic coverage?
Catastrophic coverage is the much more comprehensive coverage that you receive after you have spent a set amount (out of-pocket maximum) out of your own pocket for covered drugs ($3,600 in 2006). The ceiling on out-of-pocket costs is intended to protect you if your prescription drug needs are very high. Once you have spent the maximum, your out-of-pocket costs go down dramatically, to 5% of the cost of covered drugs (or a copayment of $2 for covered generics/preferred drugs and $5 for covered brand-name drugs, whichever is greater).
11. What costs count to reach the out-of-pocket maximum?
Only payments for drugs on your plan’s formulary count towards your out-of-pocket maximum (unless you received an exception to the plan’s formulary). Medicare refers to these as True Outof-Pocket (TrOOP) Costs. Some examples that will count include payments through a pharmacy in your plan’s network made by:
- you as long as you are not reimbursed by an insurer;
- other individuals such as family members or friends, as long as they are not reimbursed by an insurer;
- a qualified State Pharmacy Assistance Program (SPAP) (SPAP payments for nonformulary drugs or excluded Part D drugs do not count toward the limit);
- a charitable organization that is not associated with an insurer or your employer;
- health savings, flexible spending or medical savings accounts;
- Pharmaceutical Manufacturer Patient Assistance Programs.
Note: Coinsurance or copayments that are waived or reduced by pharmacies for people in need on a case-by-case basis, or routinely for individuals who receive extra help will count toward the out-of-pocket limit as long as:
- the pharmacy does not advertise this policy;
- the pharmacy is not partly or fully publicly funded.
Your Medicare plan will keep track of your out-of-pocket expenses for you.
12. What costs does not count towards my out-of-pocket maximum?
Here are some examples of drug costs that will not count toward your out-of-pocket maximum (TrOOP costs):
- Any payments made by:
– group health plans (such as retiree coverage provided by a former employer or union);
– Government programs such as TRICARE, Black Lung, Veterans health benefits and Indian Health Services;
– Workers’ Compensation;
– automobile, no-fault, or liability insurance;
– AIDS Drug Assistance Programs (ADAPs) (see question 85);
– any other third-party payment arrangement; - drugs purchased outside the U.S.;
- drugs not on the plan’s formulary (unless you received an exception);
- drugs explicitly excluded from Medicare drug coverage (including over-the-counter drugs, benzodiazepines) even if your plan has enhanced coverage that covers them.
Note: The amount you pay for your monthly Medicare private drug plan premium also does not count towards your out-of-pocket maximum.
13. What is the Medicare drug benefit premium penalty?
Although enrollment in the Medicare drug benefit (Part D) is voluntary, you may have to pay a premium penalty if you enroll in it after you are first eligible.
You could have to pay a Part D premium penalty if
- you do not enroll when you are first eligible; and
- you do not have coverage that is at least as good as Medicare’s (“creditable coverage”) for 63 days or more.
The penalty means you must pay a higher monthly premium, which increases every month until you enroll. If you have to pay a premium penalty, you will have to pay it for the rest of your life, and the penalty will likely increase every year.
The premium penalty will be at least 1% for every month you delay enrollment (1% of the average national premium). For example, if the average national premium in 2007 is $45 a month, and you had delayed enrollment for 15 months, your premium penalty would be $6.75, which would be added to the monthly premium charged by your Medicare private drug plan. ($45 x 1% = $0.45 x 15 = $6.75).
Note: If you are receiving extra help paying for your Medicare drug costs and your income is below $12,919.50 a year for individuals ($17,320.50 a year for couples) in 2005 (less than 135% of the federal poverty level), will only have to pay 20% of the premium penalty and you will only have to pay it for five years. So, using the above example, your monthly premium penalty would be $1.35 ($6.75 x 20% = $1.35) in 2007.
14. How do I pay the premium for Medicare prescription drug coverage?
You can choose to have the premium automatically deducted from your Social Security check (or Railroad Retirement or Office of Personnel Management check) each month (in the same way your Part B deductible is deducted) or you can pay it directly to the Medicare private drug plan in which you enroll (by check or electronic funds transfer).
Employers, State pharmaceutical Assistance Programs (SPAPs), state Medicaid agencies, and charitable organizations can also pay prescription drug premiums on your behalf.
If you choose to pay the premium to the plan, and you are in a Medicare private plan that combines all your Medicare benefits (like an HMO or PPO), the plan will likely combine the prescription drug coverage premium with the premium for your other coverage, so that you pay one lump sum to the plan. You can have the combined Medicare Advantage and Medicare Drug Coverage premiums taken out of your Social Security check, but you cannot separate them.
You will pay your out-of-pocket costs at the pharmacy, and your Medicare private drug plan will keep track of these costs for you.
15. Can the premium increase in 2007?
Yes. Premiums for Medicare private drug plans will likely increase every year. If you are paying a premium penalty, that penalty amount will increase as well.
16. Will Medicare prescription drug coverage help me?
Medicare prescription drug coverage may help you by lowering your prescription drug costs. Even if your costs are low today, having insurance means that if your drug costs ever increase dramatically, you will have help paying them. And if you do not enroll in the Medicare drug coverage when you are first eligible you may have to a premium penalty if you enroll later (see question 13).
Whether the drug benefit will save you money when it first becomes available depends on your situation. If you currently do not have drug coverage that is at least as good Medicare’s you may save money from the start if you have drug expenses, plans in your area offer coverage at a reasonable premium, have reasonable out-of-pocket costs and cover most or all of your drugs.
If your income and assets are low, the Medicare prescription drug benefit may lower your drug costs significantly (see questions 19 through 46).
17. I do not need or want Medicare prescription drug coverage now. Can I get it later?
Yes, but if you do not enroll during the Initial Enrollment Period when the benefit first becomes available (November 15, 2005, through May 15, 2006), you may have to pay a premium penalty if you enroll at a later date.
If you already have prescription drug coverage that is at least as good as Medicare’s drug benefit (“creditable coverage”), you will not be subject to a premium penalty. In order to avoid a penalty, you cannot have been without comparable drug coverage for more than 63 days.
If you go without comparable drug coverage for more than 63 days after your initial enrollment period ends, you will have to pay the premium penalty for as long as you have Medicare drug coverage, and the penalty will likely increase every year (since it is 1% of the average national premium). (Some persons receiving extra help pay reduced penalties—see question 13.)
18. What if my drug costs are low?
If you currently have low or no drug costs, Medicare drug coverage may not save you money on drugs when you first enroll. But you should consider that you may need coverage later if you become sick and use more prescription drugs. And if you wait to enroll in the Medicare drug benefit, you may have to pay a higher premium because of the penalty for enrolling late (see question 13). However, as you budget, you should also keep in mind that Medicare drug plan premiums are expected to rise every year.
19. Can I get extra help if my income is low?
Yes. If your annual income is below 150% of the federal poverty level (FPL) ($14,355 a year for individuals and $19,245 a year for couples in 2005) and your assets are low (less than $11,500 for individuals and $23,000 for couples) you may be eligible for extra help paying for your Medicare drug costs (also referred to as the low-income subsidy or LIS).
Note: If you do not answer “yes” on the application when it asks if you intend to use part of your resources for your burial, your asset limit will go down to $10,000 for individuals and $20,000 for couples.
Even if your income or assets are above the limit, you may still qualify because certain types of income and assets may not be counted. Your house and cars are not counted. Also, part of your earned income will not be counted (see questions 33–35). In addition, some state Medicare Savings Programs (MSPs) have looser rules for counting income and assets, or do not consider assets altogether. If you do not directly qualify for extra help, ask a Medicaid counselor if you qualify for an MSP. If you are enrolled in an MSP you automatically qualify for extra help.
20. How do I get the extra help with my Medicare drug costs?
If you get Medicaid, a Medicare Savings Program (MSP) or receive Supplemental Security Income (SSI), you automatically qualify for help. You do not have to apply for this extra assistance.
If you do not have Medicaid or an MSP, you can apply for extra help paying for your Medicare drug benefit through the Social Security Administration using either its paper or online application (available at www.ssa.gov), or over the phone at 800-772-1213. You will also be able to apply for it at your local Medicaid office. You can appoint someone to help you complete the application form (see question 37).
Keep in mind that applying for the extra help does not enroll you in the Medicare drug benefit. You still have to choose a private drug plan through which to get your drug coverage. (See questions 26–32 for more information about what happens if you fail to choose a plan yourself.)
© 2005 Medicare Rights Center
