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A summary of the Medicare Part D Prescription Drug
Benefit Program
The Medicare Prescription Drug, Improvement, and Modernization Act was
passed on December 8, 2003. The Medicare Prescription Drug
Improvement and Modernization Act of 2003, also known as the Medical
Reform Act established a voluntary drug benefit for Medicare beneficiaries
and created a new Medicare Part D.
Simply put, the Medicare Modernization Act and the Medicare Prescription
Drug Improvement feature gives elderly and disabled people already on
Medicare access to drug coverage beginning in January of 2006. This Act
expands health care benefits for Medicare beneficiaries. Accordingly, in
January, 2006, Medicare will launch Medicare Part D prescription drug plans
(PDPs) to help beneficiaries save on prescription drug costs.
In essence, the Medicare Part D Prescription Drug plans are
government-sponsored insurance policies (issued by commercial
insurance companies), designed to help protect you against the ever rising
costs of prescription drugs. Anyone with Medicare Part A or Part B can
purchase a prescription drug benefit plan through private insurance
companies beginning on November 15, 2005. As noted, the plans take effect
on January 1, 2006.
What are the Details of the Medicare Part D Program?
In general, Medicare prescription drug plans provide insurance coverage for
your prescription drugs. If you join the Medicare Plan D there will be a
monthly premium of approximately $37.00. Prescription costs will vary
depending on the particular drug plan you choose. In more detail:
Medicare Part-D will provide choices for prescription drug coverage plans
with an estimated average monthly premium of $35-37.
The plans have an annual $250 deductible.
After the deductible is met (the insured has paid the first $250), Medicare will
pay 75% of the covered prescription costs up to $2000.
The insured person must then pay the remaining 25% of the next $2000.
After the $2000, the insured person pays the 100% of the next $2850.
The insured person then has a co-payment thereafter of 5%.
Benefits may vary depending on income levels.
Premiums may increase annually.
What Governmental Agency is Responsible for
Medicare Part D?
The Centers for Medicare and Medicaid Services (CMS), replacing the Health
Care Finance Association (HCFA).
Which Dates are Important to Me?
November 15, 2005 - May 15, 2006
Open Enrollment for Medicare Part D takes place between these dates.
December 31, 2005
The existing Medicare Endorsed Drug Discount Card comes to an end.
January 1, 2006
The Medicare Part D Prescription Drug Benefit goes into effect.
May 16, 2006
Monthly premium will increase after the end of the open enrollment period.
When Can I Join a Prescription Drug Plan?
If you currently have Medicare Hospital of Medical Insurance (Parts A or B),
you can join the Medicare prescription Drug plan between November 15,
2005 and May 15, 2006.
If you join a plan before December 31, 2005, your Medicare prescription drug
plan coverage will begin on January 1, 2006. If you join after December 31,
2005, your coverage will begin on the first day of the month after the month in
which you join.
Calculate your Out-Of-Pocket Expenditure!
Medicare set the following guidelines for Medicare Part D prescription drug
plans, however, available plans may vary from these guidelines.
Monthly Premium - $35.00 to $37.00 Paid by the Medicare Beneficiary (actual
premium not yet announced)
Annual Deductible - $250.00 Paid by the Medicare Beneficiary
Cost of Prescriptions ($251 - $2,250) -
25% Paid by the Medicare Beneficiary - 75% Paid by Medicare
Cost of Prescriptions ($2,251 - $5,100) -
100 % Paid by the Medicare Beneficiary - 0% Paid by Medicare
More than $3,600 annual out-of-pocket threshold - The Medicare Beneficiary
pays the greater of either 5% of the prescription drug costs or $2 for generic
prescription drugs and $5 for brand-name prescription drugs. Medicare Part
D pays the lesser of either: 95% of the prescription drug costs or the balance
of the prescription drug costs.
An example of how the out-of-pocket costs could
add-up. Here is an example of how the out-of-pocket
costs could add-up under Medicare Part D.
If a Medicare beneficiary had prescription drug costs of $5,100 per year, here
is how much it would cost the Medicare Part D beneficiary personally or
out-of-pocket:
Annual Deductible (or first $250 spent): - $250
25% of ($2,250 - $250 = $2000): - $500
100% of ($5,100 - $2,250 = $2,850): - $2,850
Total Cost to Medicare Beneficiary (out-of-pocket): - $3,600
Therefore, our Medicare beneficiary that had Prescription drug costs of
$5,100, would have approximately $3,600 of out of pocket or personal costs
per year.
An other example of how the out-of-pocket costs could
add-up. Please remember though, that these are only
estimates and your actual costs will depend on the
Medicare Part D plan that you select this Fall (starting
November 15, 2005).
Your out of pocket prescription drug costs are calculated on a
progressive-like basis (like your federal income tax). Therefore, you will pay
the first $250 yourself (as the Medicare Plan D Plan deductible). After your
deductible, you will need to pay 25% of all your prescription drug costs up to
a total of $2,250. For this example, let us assume that your total yearly
prescription drug expenses are $2,600. Therefore, you will pay 25% of the
difference between the deductible ($250) and $2,250 which is: (2,250 -
250)*.25 = $500. When you spend more than $2,250, you will be
responsible for 100% of the difference between $2,250 and (as in our
example) $2,600 or an additional cost of $350.
Your total ESTIMATED annual "Out of Pocket" prescription drug cost with a
Medicare Part D plan should then be around: $250 + $500 + $350 = $1100
(plus the monthly premium for the Medicare Part D plan).
What if a Medicare beneficiary has Prescription drug
costs over $5,100?
Once our example Medicare Beneficiary has spent approximately $3,600, the
last paragraph of the guidelines goes into effect:
More than $3,600 annual out-of-pocket threshold
The Medicare Beneficiary pays: the greater of either: (1) 5% of the
Prescription Drug Costs or (2) $2 for generic Prescription Drugs / $5 for
brand-name Prescription Drugs.
Medicare Pays: the lesser of either: (1) 95% of the Prescription Drug costs or
(2) the balance of the Prescription Drug costs.
At this point in our example, the costs to the Medicare beneficiary will depend
on the type/cost of prescription medication that is purchased. For example, if
the Medicare beneficiary purchases non-generic Prescription drugs costing
more than $5.00, the Medicare Beneficiary would need to pay 5% of the total
costs.
Is there any "penalty" or cost after the May 15, 2006
enrollment deadline?
Yes, there may be an additional monthly cost to those who enroll in a
Medicare Part D plan after the open enrollment period ends. As already
mentioned, the Medicare Plan D open enrollment period begins November
15, 2005 and ends May 15, 2006. After the May 15 date, the cost for a
Medicare Part D Prescription Plan will increase an estimated 1% per month.
Some have called this cost increase a "life-time premium penalty".
For example, if the normal cost of a plan during the open enrollment period
is $35.00 per month, a person who waits 12 months to enroll in a Medicare
Part D plan would add $4.20 a month to their monthly premium (calculated -
1.12 * $35.00 = $39.20).
Please note, that these penalties or additional costs
may not apply if you currently have drug coverage
through a former employer or union considered as
credible coverage.
What happens to my other Prescription Drug Plan after
May 15, 2006?
As the Medicare Part D prescription discount plans are introduced, existing
Medicare-approved drug discount cards will be phased-out. If you buy a
Medicare Part D prescription plan prior to May 15, 2006, your old
Medicare-approved discount card will expire on the date your Medicare Part
D coverage begins. All Medicare-approved prescription drug discount cards
will expire on May 15, 2006.
