Decisions to Make Under Your New Medicare

Prescription drug benefits and other changes are coming to Medicare. Let’s take a look some details, the timetable, and the actions you should consider over the next few years.

Keep in mind that the prescription drug provisions are voluntary. You don’t have to leave your current benefit structure unless you want to or the provider terminates it.

The first major change will be the availability of Medicare-endorsed prescription drug discount cards by June 2004, costing seniors $30 or less. Current estimates are that the discounts will be 10% to 25% on many drugs and perhaps average 10% to 15%. The discounts will vary by the drug and other factors. Seniors with annual incomes of less than $12,123 will receive $600 toward medicine with their cards and have the fee waived.

Any private sector entity can apply to the government to be allowed to issue the cards: pharmacy benefit managers, insurers, chain drug stores, wholesalers, drug companies and others. Card providers and drug makers will negotiate discounts with each other. Each beneficiary can have only one Medicare-endorsed discount card.

There already are many drug discount programs (see the web site Archive or the June 2002 issue). These programs are likely to continue for at least a while and compete with the Medicare-endorsed discount cards.

The government is now taking applications from interested firms. Each firm is likely to offer different levels of discounts and vary the discounts for each drug. They also can favor generics over brand names.

Each senior should shop among both the new cards and existing discount programs to determine the best deal. You also might decide to continue with your current health benefit package.

Actions to take: Make a list of your medications and what they cost you. Consider adding other medications you might take in the next couple of years based on family history or current symptoms. Study the currently available discount plans. Be ready to compare the new discount drug cards as they become available. When examining a new card, get the specifics of which drugs are covered and what the cost will be.

In 2006 Medicare beneficiaries can choose to sign up for a Medicare drug plan or join a private health plan that offers drug coverage (or make no changes). The cost and benefits of the private plans will be decided by the firms offering the plans.  The Medicare medicine program will have several levels of benefits:

• The monthly premium will be $35 monthly, $420 annually. There will be a $250 annual deductible. 
• After the deductible is paid, Medicare will pay 75% of the next $2,000 of medicine costs, until the total expenses for the year are $2,250. That means the beneficiary will pay $750 of the first $2,250 of medicine expenses, plus the monthly premium. The monthly premium and deductible are waived for individuals earning less than $12,123 ($16,362 for couples). 
• Then the beneficiary pays all medicine costs between $2,250 and $3,600. The coverage gap is waived for individuals earning less than $12,123 ($16,362 for couples). 
• Finally, catastrophic coverage kicks in. The beneficiary will pay only 5% of the costs that exceed $3,600 each year. 
• A little-known provision doesn’t allow beneficiaries to buy insurance to cover the gaps in Medicare prescription drug coverage after Jan. 1, 2006. You cannot even buy a policy to cover drugs not included in your main policy’s coverage. 

Actions in 2006: You will need to decide if you want the Medicare prescription drug benefit, any private options that become available in your area, or whatever your existing coverage is. In addition to costs, the key to comparing plans is to be sure the prescription drugs you use are covered under a plan. A “prescription drug plan” doesn’t have to cover all prescription drugs.

About 75% of Medicare beneficiaries now have some kind of drug benefit outside of Medicare. One concern about the new law was that many corporations would drop their retiree prescription drug benefits and shift the cost to Medicare. To prevent that, the new law will make tax-free payments to these corporations as long as they maintain the benefits. This is estimated to be the biggest expense in the new Medicare law.

Those are the headline changes in the new law. Here are a number of other important provisions that haven’t received as much attention.

• Beginning in Jan. 2005, new enrollees to Medicare will get free physicals and all enrollees will be covered for heart disease and diabetes screenings. 
• More cash will be flowing right away into the HMO Plus Choice program. Many HMOs dropped out of Medicare or reduced benefits because Medicare reduced reimbursements. This new cash might cause HMOs to increase their benefits or return to the Medicare market in 2004. Be alert for news that HMOs are becoming more attractive in your area. 
• The Medicare changes overshadowed a new benefit for those under age 65. Some individuals can establish tax-free health savings accounts (HSAs). To be eligible, the individual must be covered by a health insurance policy with a deductible of at least $1,000 for a single person or $2,000 for a family policy. Preventive care cannot be subject to the deductible, and out-of-pocket expenses under the policy must be limited to $5,000 annually for an individual and $10,000 for a family. 

  When the qualifications are met, an HSA can be funded and used to pay for medical expenses. The annual funding can be no more than twice the deductible up to a limit of $2,600 for individuals and $5,150 for families. Those ages 55 through 65, inclusive, get extra “catch up” contributions that are $500 in 2004. The HSA can be funded by either the individual or by an employer. In addition, relatives of the insured can fund the account.

  The money contributed to the HSA is pre-tax (deductible by individuals or excluded from income if paid by employers), and the money taken out of the account is tax free when it pays for medical expenses. Money in the HSA that is not spent in a year can be left in the account, invested tax-free, and used to pay for future medical expenses. When the account owner dies, the account becomes taxable to a beneficiary other than a spouse.

  The HSA is very flexible. It gives a younger person a tax-advantaged way to begin accumulating now to pay for retirement health care expenses. Parents can fund accounts for their children. Employers might find that the plans are more attractive to both them and their employees than traditional health coverage.

• There will be some means-testing of Medicare beginning in Jan. 2007. Currently, beneficiaries pay 25% of the outpatient care and doctor visits under Medicare Part B. This percentage will increase to 35% for seniors with incomes of more than $80,000 and further increase on a sliding scale until those with incomes over $200,000 will pay 80% of these expenses. 
• The annual deductible for outpatient care has been fixed at $100 for years. It will rise to $110 in 2005 and increase annually after that. 
• Hospitals can avoid future payment cuts by submitting quality of care data to the federal government. The aim of this provision is to improve quality of care and let patients know the quality of different hospitals. 
• A limited test program is scheduled for 2010. In no more than six geographic areas (to be selected later by the government), the Medicare Plus Choice name will be replaced by Medicare Advantage. In those areas, private insurers will bid for beneficiaries and compete with the government’s fee-for-service plan. Medicare premiums and other benefits will be based on those the private insurers will set. A number of observers believe this experiment never will go into effect.