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Medicare and the New Prescription Drug Benefit. Presented by Tricia Neuman, Sc.D. Vice President and Director, Medicare Policy Project The Henry J. Kaiser Family Foundation for January 2004. Background and Context: Why Drug Coverage Matters. Exhibit 1.

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Medicare and the New Prescription Drug Benefit

Presented byTricia Neuman, Sc.D.

Vice President and Director, Medicare Policy ProjectThe Henry J. Kaiser Family

January 2004

Background and context why drug coverage matters

Background and Context: Why Drug Coverage Matters

Key characteristics of the medicare population

Exhibit 1

Key Characteristics of the Medicare Population

Percent of total Medicare population:

Lack Drug Coverage (Full and Part Year)

Low Income (<150% FPL or less than $13,965 in 2004)

1+ Functional Limitation

Fair/Poor Health


Cognitive Impairment

Under 65 Disabled

Nursing Home/Assisted Living Resident

SOURCE: Stuart and Briesacher, estimates based on 2000 MCBS; Medicare Current Beneficiary Survey, 1997-2002; Low-income estimate from Urban Institute based on March 2003 Current Population Survey.

Skipping doses of medication among chronically ill seniors with and without drug coverage

Exhibit 2

Skipping Doses of Medication Among Chronically Ill Seniors With and Without Drug Coverage

Percent of seniors in 8 states who skipped doses of medicine to make it last longer:

SOURCE: Kaiser/Commonwealth/New England Medical Center 2001 Survey of Seniors in Eight States.

Medicare beneficiaries out of pocket prescription drug spending 2000 2013

Exhibit 3

Medicare Beneficiaries’ Out-of-Pocket Prescription Drug Spending, 2000-2013

Average annual out-of-pocket drug

costs among the Medicare population:


* Without Medicare drug benefit.

SOURCE: Actuarial Research Corporation analysis for The Kaiser Family Foundation, June 2003 and November 2004.

History of medicare and prescription drugs 1965 2003

Exhibit 4

History of Medicare and Prescription Drugs, 1965-2003

1969: HEW Task Force on Prescription Drugs Report issued

1993: Clinton proposed a new Medicare Rx benefit as part of the Health Security Act

1965: Medicare enacted -no outpatient prescription drug coverage included

1989: Repeal of MCCA

2000: Clinton releases plan to provide drug coverage under a new Medicare Part D

1988: Passage of Medicare Catastrophic Coverage Act (MCCA)—drug benefit included

1965 1970 1975 1980 1985 1990 1995 2000 2003

2000: Republican-sponsored bill to create a Medicare drug benefit (H.R. 4680) passes the House of Representatives, 217-214

2002: Republican-sponsored bill to create a Medicare drug benefit. (H.R. 4954) passes the House of Representatives, 221-208; Several competing proposals for a Medicare drug benefit fail to pass the Senate

2003: Medicare Prescription Drug, Improvement, and Modernization Act signed into law by President Bush on December 8

Medicare prescription drug improvement and modernization act of 2003

Exhibit 5

Medicare Prescription Drug, Improvement, and Modernization Act of 2003

Phase 1: Medicare-Approved Drug Discount Card Program (June 2004 – December 31, 2005)

  • Cards provide discounts (not same as insurance)

  • New $600 credit in 2004 and 2005 for low-income beneficiaries who do not have Medicaid, with incomes below 135% poverty

  • 5.8 million beneficiaries currently enrolled (CMS, Dec 2004)

    • 1.4 million low-income beneficiaries receiving $600 subsidy (of ~7.2 million eligible)

      Phase 2: Medicare Prescription Drug Benefit (begins January 1, 2006)

  • Beneficiaries will have access to private plans that provide new prescription drug benefit under Medicare

    Estimated cost: $400 billion (CBO) to $553 billion (HHS) over 2004-2013 period

Medicare prescription drug benefit part d

Exhibit 6

Medicare Prescription Drug Benefit (Part D)

  • Beginning in 2006, beneficiaries will have choice of:   

    • Fee-for-service Medicare, with access to private plans offering prescription drug coverage only (PDPs)

    • Medicare Advantage plans covering Medicare benefits and prescription drugs (MA-PD plans

  • New plans will provide “standard” prescription drug benefit or its actuarial equivalent

  • Plans have flexibility (subject to certain constraints) to establish varying features:

    • Levels of cost-sharing requirements and coverage limits other than “standard” coverage

    • Lists of drugs to include on their formulary, and on which tier

    • Cost management tools

  • Premium and cost-sharing subsidies for beneficiaries with incomes up to 150% FPL ($13,965 for an individual in 2004) and modest assets up to $10,000

Standard medicare part d drug benefit 2006

Exhibit 7

Standard Medicare Part D Drug Benefit, 2006

Beneficiary Out-of-PocketSpending



Medicare Pays 95%


$5,100 in Total Drug Costs**

$2,850 Gap: Beneficiary Pays 100%



$2,250 in Total Drug Costs*



up to Limit

Medicare Pays 75%


$250 Deductible

+ ~$420 average annual premium

*$2,250 in total spending is equivalent to $750 in out-of-pocket spending. **$5,100 in total spending is equivalent to $3,600 in out-of-pocket spending. SOURCE: Kaiser Family Foundation analysis of Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

Provisions in the mma for low income beneficiaries

Exhibit 8

Provisions in the MMA for Low-Income Beneficiaries

  • Premium and cost-sharing subsidies, with most generous assistance provided to those with lowest incomes

    • 6.5 million Medicare beneficiaries eligible for full Medicaid benefits (“dual eligibles”)

    • Beneficiaries with incomes <135% FPL ($12,569/individual in 2004) and assets <$6,000/individual

    • Beneficiaries with incomes 135%-150% FPL ($12,569-$13,965/individual in 2004) and assets <$10,000/individual

  • Treatment of dual eligibles

    • Medicaid stops paying for prescription drugs after December 31, 2005

    • Dual eligibles can enroll in Part D plans, or will be auto-enrolled, if necessary

    • Key questions:

      • Will “dual eligibles” transition from Medicaid to Medicare plans without falling through cracks?

      • Will “dual eligibles” be able to get needed medications under new Medicare plans?

Exhibit 9

The MMA is Projected to Reduce Average Out-of-Pocket Spending but the Extent of the Reduction is Likely to Vary

All Other Part D Participants(20.3 million)

Part D Participants Who Receive Low-Income Subsidies(8.7 million)

Average Change:- 37%

SOURCE: Actuarial Research Corporation analysis for the Kaiser Family Foundation, November 2004.

Exhibit 10

Gap in Standard Part D Benefit in 2006 Could Leave Many Part D Participants Vulnerable to High Out-of-Pocket Spending

8.6 million

6.9 Million Part D Participants Reach the “Doughnut Hole”in 2006

10.5 million

3.0 million

Total = 29 Million Part D Participants

NOTE: Estimates exclude premiums and assume no supplementation of Part D coverage.

SOURCE: Actuarial Research Corporation analysis for the Kaiser Family Foundation, November 2004.

Challenges for beneficiaries

Exhibit 11

Challenges for Beneficiaries

  • Learning about Part D

    • Comparing features of plans available within a region, including premiums, cost-sharing, formularies, and pharmacy networks

    • Learning about low-income subsidy programs and eligibility rules

    • Learning about the rules of enrollment, including premium penalty for delayed enrollment and annual plan lock-in

  • Enrolling in Part D

    • Choosing between traditional fee-for-service and a stand-alone PDP, or a Medicare Advantage plan that covers prescription drugs (where available)

    • Enrolling in low-income subsidy program, if eligible, at Social Security or state Medicaid office

  • Using the New Benefit

    • Tracking total and out-of-pocket drug spending

    • Coordinating Part D with other sources of drug coverage (state pharmacy assistance programs, employer coverage, etc.)

Exhibit 12

Decisions for Medicare Beneficiaries, 2006

Enroll in Part D Plan

Medicare Advantage

Traditional Medicare

Part D Prescription Drug Plan

No Part D coverage

HMO (local)

PPO (regional)

Private Fee-for-Service

Apply for Low-Income Subsidy

Social Security Office

Dual Eligibles

Medicaid Office

Meet Income and Asset Test?

If yes, qualify for:

Below 150% FPL: Subsidy for premium on sliding scale, $50 deductible, 15% coinsurance to $5,100 in Rx costs, $2/generic Rx, $5/brand name Rx after $5,100

Below 100% FPL: No premium or deductible, $1/generic Rx, $3/brand name Rx, pay nothing after $5,100 in Rx costs

Below 135% FPL: Subsidy for premium, no deductible, $2/generic Rx, $5/brand name Rx, pay nothing after $5,100 in Rx costs


Exhibit 13


  • Implementation deadlines pose big challenge for CMS, plans, beneficiaries

    • Plan bids due in June, awarded September, plans announced Oct 15, 2005

    • Low-income subsidy enrollment begins June 2005

    • Initial enrollment period from Nov 15, 2005 to May 15, 2006

  • Beneficiary education will be critical to ease confusion, help transition of dual eligibles to Part D, and inform plan choice

  • Medicare drug benefit projected to reduce out-of-pocket drug spending, especially for low-income, but many unknowns

    • Will new prescription drug-only plans emerge?

    • Will seniors sign up for Part D and low-income subsidies?

    • Will dual eligibles transition from Medicaid to Medicare?

    • Will new drug plans cover needed medications?

  • Important to monitor beneficiaries’ access to needed medications and out-of-pocket prescription drug spending as new Medicare drug benefit is implemented.