Medicare launches its prescription drug program on January 1, 2006. The plan offers subsidies to seniors who sign up for Medicare’s prescription drug insurance. Although enrollment begins November 15th, many seniors are still confused about the program.

Dubbed ‘Medicare Part D,’ Congress passed the Medicare Modernization Act in November 2003. Unlike other government-sponsored health programs, this new program is not just for low-income seniors. All seniors may enroll in Part D.

The plan is estimated to cost between $724 billion and $1.2 trillion over the next eight years, making it the largest government entitlement program since Lyndon Johnson’s Great Society. Shortfalls are only part of the problem. Navigating the plan choices and coverage is proving difficult for seniors.

Part of the plan’s complexity is caused by the number of agencies involved. Medicare does not provide the insurance directly. Instead, each state has contracted with insurance providers to offer the drug coverage. If you are a senior, you must decide if you should sign up, and then which plan you should purchase.

Most states offer at least 40 different drug plans. Premiums average $37 per month, depending on the level of coverage and the types of drugs covered by the plan. Virginia residents may choose from 40 different plans with premiums ranging from $8.81 to $68.61 per month. Beneficiaries with limited income and resources will receive additional subsidies to cover the deductible, monthly premiums, and the out-of-pocket drug costs.

Determining the benefit to you can be difficult. The cost structuring is the same for each plan offered. The deductible is $250 per year. After that, you pay 25% of your costs up to $2,250. From $2,251 to $5,100-known as the ‘donut hole’- you pay all drug costs. After $5,101, you pay only 5% of expenses. In other words, if you have high drug costs, you will pay $3,600 out of pocket. After that, Medicare pays 95% of your drug expenses.

The confusing cost-structuring has led many seniors to ask why they should sign up at all. This is not good for the financial health of the program. If seniors wait until they need excessive pharmaceuticals, then only the most expensive seniors to cover will be participating in the program. Any insurance program relies on those with lower health costs to fund the rest. Although the program is voluntary, it is also trying to be coercive as well.

Seniors who fail to sign up by May 15, 2006, and subsequently decide to sign up could be charged more than those who sign up before the deadline. Seniors who do not sign up before May 15, 2006, could pay 1% more in the cost of their premium for each month they delay registration.

That means if you sign up six months late, providing companies can charge six percent more than otherwise allowed. If you wait five years (sixty months), companies can charge you 60% more. That doesn’t necessarily mean every senior should sign up, but is intended to be a strong incentive.

For many, it is clear whether or not to sign up, but for others it is more confusing. Let’s start with some clear cases.

If you are eligible for government subsidies that will pay all or most of the cost of coverage, you should make certain that you sign up. Realistically, coverage for lower- income seniors is the only portion of this legislation that should have been funded and the only portion that has broad support. Government assistance is available if your income is less than $14,355 ($19,245 if married) and resources are less than $11,500 ($23,000 if  married). Resources include your savings and investments but they do not include your house or car.

On the other hand, if you currently have prescription drug coverage you may not need to decide now. If your existing coverage is deemed equivalent to the standard Medicare drug coverage, keep your current coverage. You should receive a letter from your current insurance indicating whether your insurance equivalent to the Medicare standard. The specific term they use to describe equivalent coverage is ‘creditable.’ If your coverage is creditable, you do not face any penalty if you subsequently decide to switch to Part D.

If you don’t qualify for extra help to pay for Part D and you don’t have creditable coverage, your decision becomes more difficult. If you currently purchase prescription drugs you should take the time to determine if any of plans available in your state will currently save you money. Chances are good that one of the plans will help.

More information about the prescription drug program is available by visiting www.medicare.gov or by calling 1-800-MEDICARE.

Local businesses and pharmacies in your area may provide assistance in learning more about Part D. Residents of the Charlottesville, Virginia area can find help at the CVS pharmacy on Barracks Road which will offer informational meetings from 10AM to 4PM every Tuesday in November. The local Charlottesville Wal-Mart will also have a Medicare representative available to meet with customers during the month of November. Be sure to bring a detailed list of all the prescriptions you are currently using.

The decision to sign up is the most difficult for healthy seniors who don’t currently have or don’t need drug coverage. Medicare wants you to sign up now in order that you might subsidize coverage for those who will make money from the deal. This is an unfair piece of legislation because it requires tax payers and healthy middle class seniors to subsidize millionaire seniors with prescriptions over $250 a year. Never the less, it is now the law. Make your decisions carefully.

If you don’t currently have or need coverage you may still want to enroll in Medicare Part D. In some states coverage can be purchased for as little as $1.87 per month and will prevent you from having to pay much higher premiums later. If the cheapest coverage doesn’t have what you need in future years, you can change your coverage later to whichever plan will save you the most money.

Seniors don’t always take the actions they should to protect themselves and their finances. If you know a loved one who needs to make these decisions, connect them with objective advice that will sit on their side of the table and help them through the process.

Medicare Part D Prescription Drug Coverage Decision Table
IF…	THEN…
You currently receive Medicaid	You will automatically be enrolled in Part D
You qualify for government assistance	Sign up for Part D
You already have creditable coverage	Don’t sign up for Part D
You pay over $250 in prescriptions	Visit www.medicare.gov to determine the most cost-effective coverage
You pay less than $250 in prescriptions	Consider getting the cheapest Part D coverage to prevent future penalties

 

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