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Medicare benefit provides new coverage for seniors
Part D for Drugs

On January 1, 2006, millions of Americans became eligible for federally guaranteed prescription drug assistance. It was the biggest change to the nation's health and human service programs since the creation of Medicare in 1965.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) added a new benefit to Medicare, the federally funded health insurance program for people aged 65 and older, as well as certain people with disabilities. This benefit, called Medicare Part D, is intended to aid Medicare recipients facing substantial drug costs.

Cutting costs
Leaps in drug technology have been accompanied by sharp increases in prices. Many drugs entail annual and even monthly costs in the thousands of dollars.

Medicare Part D provides seniors with coverage for drug costs through a network of approved private providers. People opting to participate in Part D must select a plan from these providers. Generally, the plans available fall into two categories--prescription drug plans (PDPs), which provide drug coverage only, leaving the beneficiary to receive other Medicare benefits through the traditional fee-for-service model; and Medicare Advantage (MA) plans, which provide drugs and all other Medicare services through existing health maintenance organizations or preferred provider organizations.

The Kaiser Family Foundation reports that, in Texas, 20 different companies offer 47 Part D PDPs, while 17 companies offer MA plans.

According to the federal government, most recipients who opt for Part D coverage in 2006 will pay a monthly premium averaging $25, as well as a $250 annual deductible. When the deductible is met, Medicare will pay 75 percent of the enrollee's yearly drug cost, up to $2,250.

After this threshold, patients must assume the responsibility for payment until their out-of-pocket expenses for the year reach $3,600. Then Medicare will begin paying 95 percent of all further prescription expenses. People whose incomes are below 150 percent of the federal poverty level will receive additional aid in the form of reduced or eliminated premiums and deductibles.

Part D could produce significant savings for millions of Texans. According to an October 2005 analysis by PricewaterhouseCoopers LLP, just prior to the program's adoption, only 52 percent of Medicare beneficiaries nationwide had some form of catastrophic drug coverage. In Texas, the share was even lower, at 46 percent. About 1.3 million Texas Medicare recipients lacked coverage.

With the adoption of the new drug benefit, up to 98 percent of all U.S. Medicare recipients can have coverage against catastrophic drug costs. In Texas, 97 percent of recipients--nearly 2.4 million people--can receive coverage.

Seniors' out-of-pocket drug costs should fall as well, regardless of whether they had pre-existing coverage. PricewaterhouseCoopers estimates that without the Part D benefit, Texas Medicare beneficiaries pay an average of $1,304 annually for drugs, plus any insurance premiums. With the drug benefit, the average cost will fall to $885, plus average premium costs of $25 per month.

Part D's effect will be more dramatic for Texas Medicare recipients who previously lacked prescription drug coverage. Their average annual out-of-pocket expense will fall from $1,813 to $763 plus premium costs.

Low-income beneficiaries without prior coverage will see the largest gains. Their average annual out-of-pocket costs should fall from $1,814 to $158.

One of the biggest changes produced by the MMA concerns the dual eligibles--people entitled to receive benefits both from Medicare and Medicaid, the state- and federally-funded program that provides health services for people with financial need, as determined by income and other eligibility requirements.

According to the Kaiser Family Foundation, the federal Centers for Medicare and Medicaid Services (CMS) identified about 6.1 million dual-eligible people. The Texas Health and Human Services Commission estimates that as of May 1, 2005, Texas had 317,750 dual-eligible residents, including 64,360 people in nursing homes and other institutions.

Under the MMA, all Medicare-eligible people who previously received Medicaid drug benefits have been switched to Part D. Those who did not select a Part D plan prior to the January 1, 2006 start date--almost 5.5 million Americans--were randomly assigned to a plan.

Rollout problems
The shift of millions of people to Medicare coverage has not been trouble-free. News articles in January 2006 highlighted the difficulties some people had in proving Part D eligibility, and the confusion pharmacists faced as they attempted to straighten out eligibility questions for their clients.

"While it has given many Medicare beneficiaries the opportunity for lower-cost drugs, it has also been a very confusing program for seniors," said Kristie Zamrazil, senior director of public affairs for the Texas Pharmacy Association. "The systems in place were not ready to handle claims processing as of January 1. Pharmacists have spent long overtime hours helping their patients try to get the medicines they need."

Still, most expect improvements as the new program settles in.

"Every plan out there, and CMS as well, has promised that they're making changes and improvements as fast as they can, and fixing the problems with their systems," said Zamrazil.

The important thing is that steps are being taken every day to resolve these issues, said Carole Barasch, director of communications for the Texas branch of AARP.

"This [situation] has been pretty fluid, and I think day by day we're seeing that more prescriptions are being filled properly, and people are getting [a better] customer service response," she said. "And once those problems are sorted out, millions of Americans will have an opportunity to access affordable prescription drugs."

Other insurance?
Critics of Medicare Part D have voiced concerns that the program may encourage government employers, unions and private firms to abandon their own retiree drug coverage--which may offer better benefits than Part D--in favor of the federal program. According to CMS, the percentage of large private firms (those employing 200 or more workers) that provided drug coverage fell from 66 percent in 1988 to 38 percent in 2003.

The MMA contains provisions intended to encourage governments, private companies and unions to maintain their own insurance programs, in the form of subsidies to be paid to qualified plans that offer benefits at least equivalent to Part D coverage. CMS estimates that these subsidies will average about $611 per beneficiary in 2006.

The subsidies are designed to be flexible, and also can be used to provide separate, supplemental coverage that works with Part D to provide retirees with a more complete, or "wraparound," drug benefit.

No widespread abandonment of private insurance has occurred yet. In 2005, the Kaiser Family Foundation surveyed 300 private firms with 1,000 employees or more and found that 79 percent planned to accept the subsidies for their private programs in 2006.

Bruce Wright