April 26, 2004

Like most retired Americans, you probably have questions about the recently enacted Medicare prescription drug program. Here are answers to someF of the most frequently asked questions.

When will the Medicare reform bill’s prescription drug programs go into effect?
The Medicare reform bill provides prescription assistance to Medicare eligible individuals in two stages.

•  A drug discount card which can be used from June 1, 2004 through Dec. 31, 2005.
•  A funded drug benefit which will be implemented Jan. 1, 2006.

How will the Medicare drug discount card work?
The Medicare Drug Discount Card will be offered by a number of vendors. A list of approved vendors can be found at the Medicare Web site at http://www.cms.hhs.gov/medicarereform. Within the provisions of the law, the various card sponsors have considerable flexibility in administering the card. For example, levels of savings, available distribution networks, and lists of covered drugs may vary from one vendor to another. Beneficiaries interested in acquiring a discount card will have to choose among the options available in their local area and enroll with a specific vendor. Beneficiaries will have to determine for themselves which discount program best meets their needs. An individual may not enroll with more than one drug discount card program at a time.

What will the drug discount cards cost, and how much will the discount be?
It is expected that most card programs will charge an annual enrollment fee which may be waived for certain low-income individuals. In addition to the fee, the cardholder will pay 100 percent of the discounted price for covered prescriptions. The individual card sponsors are charged with negotiating discounted prices for the drugs covered under their specific program. The Medicare drug discount card program is expected to provide savings on average of 10 to 15 percent or more on the price of a drug. Available discounts will vary with the vendor and may vary with the prescribed drug and delivery system chosen.

How will the drug discount cards compare with a standard pharmacy benefit?
The new drug discount card program was not developed to replace standard prescription drug benefits. It was designed to help Medicare beneficiaries without other drug coverage. According to the Centers for Medicare and Medicaid Services (CMS), 24 percent of Medicare beneficiaries do not have prescription drug coverage, and this is the group that was targeted by CMS to purchase the new drug discount cards.

In the overwhelming majority of cases, a beneficiary will have lower out-of-pocket (OOP) expenses under an employer-sponsored pharmacy benefit plan than under a Medicare drug discount card program. OOP expenses depend on individual plan design.

For example, consider a drug which costs $100 per prescription. With a discount card offering a 15 percent discount, the beneficiary would pay 85 percent of the cost--$85. In contrast, a typical drug co-pay for a retiree covered under a standard pharmacy benefit plan may be as little as $10.

However, retirees may want to use a discount card to obtain a discount on drugs not covered under their pharmacy benefit plan such as certain non-preferred brand name drugs and lifestyle drugs. In this case, the retiree must determine whether a specific card will provide the desired discount.

Should a Medicare-eligible person already have a discount card they may keep it and obtain a Medicare-approved card.

Are there special provisions for low-income beneficiaries?
The law provides a $600 transitional assistance for qualifying low-income individuals. Qualifying enrollees would pay a 5 percent co-pay on drugs purchased with the allowance. If their drug expenses exceed the $600 allowance, they will pay 100 percent of the discounted price for subsequent prescriptions. To learn more about the allowance, please visit the Medicare Web site at http://www.cms.hhs.gov/medicarereform.

What are the provisions of the funded benefit scheduled for implementation in 2006?
Medicare Part D, the federally funded drug benefit, is scheduled to be implemented in 2006. The final rules and regulations concerning this benefit have not been released. The broad outlines of the benefit as defined in the law are described below. However, many issues remain to be finalized.

Medicare Part D will be a voluntary benefit. However, beneficiaries will not be eligible for Part D if they are actively enrolled in an employer-sponsored prescription drug plan.

Each eligible beneficiary will have a choice of at least two Medicare-approved prescription drug plans in their region. Beneficiaries will be charged a monthly premium of approximately $35 ($420 per year); however the premium level is not guaranteed and could vary widely between regions and plans.

There is a $250 deductible, meaning that enrollees must spend $250 out-of-pocket for their prescriptions before they begin receiving the benefit. When the $250 deductible has been met, Medicare will pay 75 percent of drug costs between $250 and $2,250. The enrollee pays 25 percent.

The enrollee pays 100 percent of drug expenses between $2,250 and $5,100. After hitting the $5,100 threshold, the enrollee will pay $2 for each generic or preferred multi-source brand-name drug and $5 for other drugs, or 5 percent of the cost of the prescription, whichever is greater.