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Medicare Part D Prescription Drug Benefit Presentation to: Health & Human Resources Subcommittee House Appropriations Committee Patrick W. Finnerty Department of Medical Assistance Services September 18, 2005 Richmond, Virginia Presentation Outline

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Medicare Part D Prescription Drug Benefit

Presentation to:

Health & Human Resources Subcommittee

House Appropriations Committee

Patrick W. Finnerty

Department of Medical Assistance Services

September 18, 2005

Richmond, Virginia

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Presentation Outline

Overview of Medicare Part D & “Extra Help” for Low-Income Persons

Impact on Virginia

Implementation Activities

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Medicare is a Federal Health Insurance Program

  • Eligibility for Medicare

    • 65 years or older and eligible to receive Social Security;

    • Under 65 years, permanently disabled, and have received Social Security disability payments for at least two years;

    • Have permanent kidney failure or need a kidney transplant; or Amyotrophic Lateral Sclerosis (or Lou Gehrig’s disease)

  • What Medicare Covers

    • Part A: Hospital Inpatient Care (also some skilled nursing facility care, home health, and hospice)

    • Part B: Medical Insurance (such as doctors’ services, labs, medical equipment, preventive services)

    • Part D: Prescription Drugs beginning on January 1, 2006

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What Is Medicare Part D?

  • Medicare Modernization Act (MMA) enacted in December 2003 adds a new Part D to provide prescription drug coverage

  • Prescription drug benefit available to all Medicare beneficiaries on January 1, 2006

  • Enrollment is optional, though a penalty may apply for late enrollment (enrollees must apply for coverage)

  • Prescription drugs available through private prescription drug plans (PDPs)

  • Most enrollees will have cost sharing obligations; “extra help” (subsidy) is available for low-income individuals

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Who In Virginia Is Affected By Medicare Part D?

  • There are roughly 947,000 Medicare beneficiaries in Virginia

  • Approximately 136,000 Medicare beneficiaries are also Medicaid clients, called “dual eligibles”

    • 93% of Medicaid elderly clients are “duals”

    • 62% of Medicaid blind & disabled clients are “duals”

  • When Medicare Part D becomes effective, “dual eligibles” will receive their prescription drug coverage through Medicare, and not Medicaid

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What is the MedicarePart D Benefit?

  • Prescription drug plans (PDPs) must offer a basic prescription drug benefit

    • Medicare Advantage plans (managed care plans) must offer basic plan or broader coverage at no extra cost

  • PDPs must provide coverage for drugs in each therapeutic class, but can establish preferred drug lists

    • Will include: drugs dispensed by prescription, insulin & associated supplies, vaccines

    • Will exclude: drugs covered under Part A or B, over-the-counter drugs, weight gain/loss; cosmetic purposes; cough & cold; barbiturates; benzodiazepines; certain vitamins (Va. Medicaid will continue to cover excluded drugs for “duals” for which we receive FFP)

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How Are Prescription Drug Plans Selected/Monitored?

  • The Centers for Medicare and Medicaid Services (CMS) will contract with private health plans and other vendors to provide the Medicare Part D benefit

  • Virginia will have at least 2 PDPs; Medicare Advantage (MA) Plans (managed care) will also be available

  • CMS will require PDPs and MA Plans to meet certain quality, access and administrative standards (e.g., at least 2 drugs must be available in each drug class; 60-day notice for drug changes; network pharmacy access standards; P&T Committee requirements; and appeals process)

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What Are The Cost-Sharing Requirements?

  • Under the standard prescription drug benefit, most beneficiaries in 2006:

    • Pay an average monthly premium of $34

    • Pay the first $250 in drug costs (deductible)

    • Pay 25% of total drug costs between $250 and $2,250

    • Pay 100% of the costs between $2,250 and $5,100 in total drug costs (this $2,850 gap is known as the “doughnut hole”), equivalent to $3,600 out of pocket.

    • Pay the greater of $2 for generics, $5 for brand drugs, or 5% coinsurance after reaching the $3,600 out-of-pocket limit

  • These deductibles, benefit limits, and catastrophic thresholds are indexed to rise with the growth in per capita Part D spending.

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Certain Beneficiaries Will Receive “Extra Help” To Offset Cost of Prescription Drug Benefit

  • Group 1: Full benefit “Dual Eligibles” with income <100% Federal Poverty Level (FPL) ($9,570/year); no resource limits

  • Group 2: Persons with income <135% FPL ($12,920/year), and limited resources ($6,000/individual; $9,000/couple)

  • Group 3: Persons with income <150% FPL ($14,355/year), and limited resources ($10,000/individual; $20,000/couple)

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What “Extra Help” Is Available? Offset Cost of Prescription Drug Benefit

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How Do Persons Enroll in Medicare Part D Drug Coverage? Offset Cost of Prescription Drug Benefit

  • Medicare beneficiaries will need to enroll with a PDP or MA plan

    • Enrollment begins November 15, 2005

  • Full-benefit dual eligibles who do not enroll in a plan by 12/31/05 will be auto-enrolled in a PDP

    • Can change PDP at any time

  • Information/assistance is available for beneficiaries:

    • Consult Medicare & You 2006 Handbook

    • Contact PDPs for information

    • Call Medicare toll-free 1-800-MEDICARE

    • Visit

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How Can Persons Find Out If They Qualify For “Extra Help?”

  • Medicare beneficiaries apply to the Social Security Administration (SSA); persons can apply multiple ways

    • Scannable application (mail or in-person)

    • Calling SSA toll-free (1-800-772-1213)

    • Over the internet (

      • “Qualifier Tool”

  • SSA is sending applications to those it believes may be eligible; others must initiate application process

  • States must determine eligibility for “Extra Help” if the applicant insists

    • Virginia will use same SSA application

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Certain Low-Income Persons Are Deemed Eligible for “Extra Help”

  • Certain Medicare beneficiaries will automatically qualify for and receive “extra help”

  • No application is required for:

    • “Dual eligibles”

    • Supplemental Security Income (SSI) recipients

  • Those deemed eligible for “extra help” are identified through data sharing between DMAS and CMS

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Important Dates for Help”Medicare Part D Implementation

  • January 28, 2005 Final federal regulations published

  • February 2005 CMS Public Awareness Campaign begins

  • May 2005CMS Notifies Potential Low Income Eligibles

  • June 2005 Prescription Drug Plans Bids Due

    States submit enrollment files

  • July 2005 States/SSA accept low income applications

  • Sept. 15, 2005 Prescription Drug Plan Contracts Awarded

  • October 1, 2005 Marketing/enrollment of Part D benefits

  • November 15, 2005 Enrollment Begins; lasts until May 15, 2006

  • January 1, 2006 Part D Begins; Medicaid payment ends 12/31

  • February 2006 States’ monthly payment (clawback) begins

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Presentation Outline Help”

Overview of Medicare Part D & “Extra Help” for Low-Income Persons

Impact on Virginia

Implementation Activities

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Administrative/Operational Implications Help”

  • Local Departments of Social Services (LDSSs) have significant new responsibilities related to “Extra Help” program

    • (will be addressed in Commissioner Conyers’ presentation)

  • There are also implications for DMAS:

    • Assist transition of “dual eligibles” to Part D

    • Provide monthly data to federal government

    • Handle increased telephone inquiries from “duals”

    • Provide “coordination of benefits” information

    • Conduct additional appeal hearings related to “extra help” determinations

  • Final cost impact still being determined

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States Must Pay A Significant Portion of The Part D Drug Benefit

  • Phased-Down State Contribution “Clawback”

    • States are required to help finance Medicare Part D by paying the federal government the state share of the cost of prescription drug coverage for “dual eligibles”

    • State share is set at 90% of costs for 2006 and decreases to 75% by 2015

  • “Clawback” amount based on:

    • Per capita costs for “dual eligibles” in 2003

    • Per capita growth in drug spending nationwide since 2003

    • Number of “dual eligibles” enrolled in Part D

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Virginia’s “Clawback” Amount Does Not Recognize Recent Pharmacy Program Savings

  • Since 2003, Virginia has implemented several pharmacy savings initiatives that are not reflected in the “clawback” amount

    • Preferred drug list

    • Mandatory generic substitution

    • Threshold program

    • Maximum allowable cost (MAC) pricing for generics

    • Expanded drug utilization review (DUR) program

  • While the net impact of the “Clawback” amount is not supposed to impose additional costs to states, because post-2003 cost savings are not recognized, it appears that paying the “clawback” will be more expensive than continuing the current program

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As A Result of Several Factors, It Appears Medicare Part D Will Incur Additional Costs for Virginia

  • Initial estimates indicate the overall impact of Part D for Virginia could reach $22 million (GF) in calendar year 2006 ($11 million for FY 2006)

  • Largest factor contributing to the cost is the “clawback” payment

    • Other factors include administrative costs and “woodwork” effect

  • DMAS is working with CMS to reduce impact of “clawback” payments

  • Final cost estimates are still being determined and will be considered carefully in developing the Executive Budget

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Presentation Outline Will Incur Additional Costs for Virginia

Overview of Medicare Part D & “Extra Help” for Low-Income Persons

Impact on Virginia

Implementation Activities

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HHR Agencies Are Working Together Closely To Assist CMS/SSA Implement Part D

  • DMAS has formed a Medicare Part D Task Force

    • Over 75 individuals are participating, including federal and state agencies, LDSSs, provider associations, advocacy groups, and others

  • HHR agencies are completing necessary computer system changes

  • Information provided to General Assembly members

  • Communicating with “dual eligibles”

  • Providing training programs/materials

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Training & Other Activities Implement Part D

  • An all-day training program featuring CMS and SSA staff was provided via videoconference to 29 sites across the Commonwealth yesterday

    • Training on Part D and “Extra Help”

    • More than 500 attendees

    • Videoconference was recorded on DVD; copies were made available for interested parties and information has been posted on agency internet sites

  • HHR agencies will continue to help the federal government implement the Part D program