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Biggest Medicare Drug Benefit Challenge: Understanding It

October 17, 2005
In mid-November, American seniors can begin signing up for a new prescription drug benefit under Medicare, but as the day approaches the new entitlement is being met with more than a little confusion. A visit to the Medicare Website reveals why.

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The new Medicare prescription drug benefit is not a “one size fits all” type of entitlement. It requires participants to think about their needs and make a range of choices – including choosing not to participate at all.

If they do choose to participate in what is known as “Part D,” Medicare recipients enroll in one of the plans being offered by private companies. There are no income limits applied to participation, but the federal government provides some assistance for low-income individuals. How much assistance is determined by how much income and how many assets the applicant has.

Medicare prescription drug coverage is insurance that covers both brand name and generic drugs at participating pharmacies, much like plans provided by many private employers. But that’s where the similarities end.

The Medicare Part D plan doesn’t just issue you a card and set a co-pay of $5 or $10 like most private employer plans. There are a variety of plans that pay different amounts depending on the participants’ needs and circumstances.

For example, the government says a current Medicare recipient with no private drug benefit should see a 50 percent reduction in their prescription drug costs. But the more you spend on drugs in a given year, the more the plan will pay. After a participant spends $3,600 in a given year on prescriptions, the Medicare plan pays up to 95 percent. But a participants income level may qualify them for additional assistance.

Those now receiving Medicare benefits and who have a private supplemental prescription drug program will have to compare their current program – both its benefits and costs – to one of the new Part D plans and decide which is better. The government says in most cases the Part D plan will pay more for less cost, but again, it depends on circumstances and needs.

The American Association of Retired Persons, which lobbied for passage of the Medicare prescription drug benefit last year, concedes the level of enthusiasm for the benefit isn’t close to the same as 1965, with the Medicare health benefit was enacted. Of course, that system was fairly simple to understand, and it was the same deal for everyone – a $3 monthly premium and $50 deductible plus a payment of 20 percent of each bill, with Medicare paying the rest.

“In contrast, anyone who wants drug coverage through the new benefit (known as Part D) must join a Medicare-approved private insurance drug plan. At least two plans will be available to everyone, with many more in some areas. Plans may charge different premiums and co-payments, as long as the overall value is at least as good as the standard package defined by Congress,” the group notes in a recent AARP Bulletin.

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