The New Medicare Prescription Drug Benefit: An Overview

Prepared by: Michelle Kitchman, M.H.S.

Kaiser Family Foundation

For the:

California Senate Health and Human Services Committee and the

Senate Subcommittee on Aging and Long Term CareHearing on the Impact of the Medicare Prescription Drug Bill

February 18, 2004

Agenda

• Key Rx drug provisions of the new Medicare law

- Discount cards (2004 & 2005)

- Rx benefit (2006)

• Dual eligibles, other low-income beneficiaries, and state Medicaid programs

• Implications for beneficiaries

• Future outlook

Overview of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003

• In 2004 and 2005, beneficiaries have access to:

– Medicare-endorsed discount drug cards– $600 annual drug subsidy for some low-income seniors

• Beginning in 2006, beneficiaries have choice of:   

– Traditional, fee-for-service Medicare, with access to private drug-only plans (PDPs)

– Medicare Advantage (MA), integrated plans that cover Medicare benefits and drugs

• Regional plans (PPOs)• Local area plans (HMOs)

– “Fallback” in areas without at least two options

• Subsidies to help beneficiaries with low incomes pay premiums and cost-sharing

Medicare-Endorsed Discount Drug Card

• Cards provide discounts on the purchase of drugs

• Enrollment in only one Medicare-endorsed discount card program permitted

• Individuals with Medicaid drug coverage not eligible

• Price comparisons to be posted at www.medicare.gov

• Administration estimates savings of 10-15% on total drug costs

• Pays $600 on behalf of low-income beneficiaries in each year + enrollment fee

Medicare Beneficiaries’ Out-of-Pocket Drug Spending Under New Medicare Rx Benefit, 2006

+ ~$420 in annual premiumsNew Medicare Rx Benefit

Deductible $250

No Coverage

CatastrophicCoverage

PartialCoverage

up to Limit

$2,250

$5,100 (equivalent to $3,600 inout-of-pocket spending)

25%

5%

$2,850 Gap

Beneficiary Out-of-Pocket Spending

Note: Benefit levels are indexed to growth in per capita expenditures for covered Part D drugs. As a result, the Part D deductible is projected to increase from $250 in 2006 to $445 in 2013; the catastrophic threshold is projected to increase from $5,100 in 2006 to $9,066 in 2013.

Medicare Pays 75%

Medicare Pays 95%

$420$564

$696

$250

$350

$445

2006 2010 2013

Estimated DeductibleEstimated Average Annual Premium

$670

$914

$1,141

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

2006 2010 2013

Initial Benefit Limit Catastrophic Threshold

The Benefit “Gap”

$2,850

$5,066

What Medicare Beneficiaries Will Pay for Their Prescriptions Over Time, 2006 - 2013

Source: Congressional Budget Office, November 2003.

Estimated Growth in Average Annual Medicare Drug Premiums and Deductibles:

Estimated Growth in Benefit “Gap”:

Projected Sources of Prescription Drug Coverage, 2006

Note: Risk-bearing private plans include Medicare Advantage plans and stand-alone prescription drug plans.SOURCE: CBO, November 2003

Other Rx coverage

7%

"Fallback" Plans13%

Employer-Sponsored

20%

Risk-Bearing Private Plans60%

Low-Income Subsidies and Treatment of Dual Eligibles

• $192 billion in subsidies for low-income assistance

• Could assist 14 million beneficiaries who meet income and asset requirements (including the 6.4 million with Medicaid drug benefits)

• Full dual eligibles qualify for low-income subsidy regardless of income or assets

– No premium or deductible; $1 per generic/$3 per brand name if at or below 100% poverty and $2 per generic and $5 per brand-name if >100% of poverty; no copays for institutionalized

• Beneficiaries <135% of poverty with low assets (<$6,000/individual; $9,000/couple)

– No premium or deductible; $2 per generic/$5 per brand-name up to catastrophic limit, no cost-sharing above catastrophic limit

• Beneficiaries from 135% to 150% of poverty with low assets (<$10,000/individual; $20,000/couple)

– Sliding scale premium/$50 deductible; 15% co-insurance to catastrophic limit; $2 per generic/$5 per brand-name above catastrophic limit

Medicaid/State Issues

• Less fiscal relief than anticipated– States required to finance much of the cost of prescription drug

coverage for dual eligibles through “clawback” ($88.5 billion)

– Net fiscal relief $17.2 billion over 10 years with 91% of savings after 2008

– Significant state-by-state variation in fiscal relief and impact on Medicaid budgets

• Administrative burden/costs– States have major new responsibilities for making eligibility

determinations for Medicare’s low-income subsidy program

– New enrollment into Medicaid expected (“woodwork” effect)

• Elimination of Medicaid drug coverage for dual eligibles– As of January 1, 2006, states can only use general revenue funds to

supplement Part D coverage; Medicaid matching funds no longer available

How Much Will It Cost?

Overall Cost:

• CBO estimates $395 over 10 years

• OMB estimates $534 over 10 years

Rx Cost Containment:

• “Noninterference” – Government is prohibited from direct involvement in Rx price negotiations

• CBO assumes private plans will achieve “substantial savings” through price negotiations with Rx manufacturers and pharmacies

• Reimportation remains illegal

Issues and Challenges for Beneficiaries

• Understanding that Medicare discount cards (2004) are not the same as Medicare benefit (2006)

• Deciding whether to enroll in Part D in 2006- Financial penalties for delayed enrollment

• Enrolling in low-income subsidy program

- Will beneficiaries know they are eligible? Will they sign up?

• Comparing plans and deciding which to join

- Could face wide variations in premiums, benefit design, formularies and preferred drug lists each year

• Facing potential consequences of a bad decision- Annual lock-in

• Tracking their total and out-of-pocket Rx costs- Important due to benefit gap

Limited Knowledge of the New Medicare Law

40%

36%

59% 18%

19%

19%

44%

23%

41%Total

Ages 18-64

Ages 65+

Yes, passed (correct answer) No, did not pass Don't know

Source: Kaiser Family Foundation Health Poll Report, December 2003.

You may have heard news about recent debates in Congress on a bill that would add a prescription drug benefit to Medicare. To the best of your knowledge, has this bill been passed by Congress and signed into law by President Bush, or not? (Dec. 10-14, 2003 – AFTER bill was passed and was signed by President Bush)

Looking to the Future

• Reaction of seniors and younger beneficiaries with disabilities unclear

- Public education critically needed

• Fundamental change in beneficiary responsibilities beginning in 2006

- Annual selections of private plans to supplement Medicare

• Response of key players – key to success – but difficult to predict

- Will private plans choose to participate? Over the long term?- What will MA and PDP plans look like? Will beneficiaries have

access to needed medications?- Will employers take subsidies and retain retiree health?- Will low-income beneficiaries get subsidies?

• Uncertain effects on financing and stability of Medicare program over the long term