V I E W P O I N T

The Medicare Modernization Act of 2003

The Prescription Drug Benefit

On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003.  The National Committee to Preserve Social Security and Medicare spent years advocating for a comprehensive, affordable prescription drug benefit offered through the Medicare program.  That's what seniors need and deserve to keep so many of them from having to choose between their pills and other life necessities, so they can stay healthy and out of the hospital.  What the Medicare prescription drug law brought us instead was a complicated and meager prescription drug benefit, with glaring flaws that will erode the value of what seniors receive, and could undermine the Medicare program itself.

The prescription drug benefit began in January, 2006.  Although it is structured as a new Medicare Part D, it is provided by private insurance companies rather than directly by Medicare.  Signing up for the new benefit is voluntary, but seniors who wait are penalized with premiums that increase by 1% for each month the senior postpones enrollment. 

For the average senior, the structure of the benefit is complicated because proponents were trying to minimize its cost.  In 2008, the national average premium is about $28 per month, with a $275 deductible.  The benefit is structured so that Medicare provides a 75% copayment up to the initial benefit level in covered drug costs while seniors pay 25%.  At that point, the Medicare copayment stops completely, and seniors are responsible for 100% of the cost of covered drugs until they reach the out-of-pocket catastrophic threshold..  This gap in coverage is the so-called “doughnut hole”– a hole during which seniors get no help with the cost of their drugs, while paying 100% of the premiums.  Once the threshold in covered drug spending is reached, catastrophic coverage begins, and the senior's copayment drops to 5% for covered drug costs for the rest of the year.  By the time a senior reaches the catastrophic threshold, he or she will have spent thousands of dollars in out-of-pocket costs for covered drugs, in addition to the expected premiums and deductible. 

Each year all of the thresholds increase because they are tied to increases in health care costs.  In 2008, the Medicare Trustees projected that by 2017, Medicare Part D premiums would increase to $51.08 per month, the deductible to rise to $535, and the “doughnut hole” to become a gap of $3,020.  To trigger the catastrophic benefit, a senior will need to have over $7,927 in covered drug costs.  At that point, seniors will have paid over $7,237 in out-of-pocket costs in addition to $612.96 in annual premiums.  However, these estimates only count the costs of drugs covered by the private drug plan sponsor.  Seniors get no credit for any expenses for drugs not included in the insurance company's formulary. 

Low-income seniors without significant assets who have no other prescription drug coverage receive significant benefits from the new program.  There are two levels of benefits, one for seniors under 135% of the federal poverty level and the other for those under 150%.  Both require the senior to have limited assets, and what “counts” to determine eligibility varies by State.  Depending on which level seniors qualify for, the premiums, deductibles and co-payments are either eliminated or significantly reduced.  Because the law prohibits States from spending federal Medicaid dollars to provide benefits above what is allowed in the new Part D, seniors who qualify for both State and Federal assistance may end up with fewer benefits. 

Because the new drug benefit is not a standardized program offered through Medicare, each private company that participates in the program has its own list of covered drugs, and is permitted to periodically alter its formulary.  Plans are required to cover some drugs in all “therapeutic” classes, but they are not required to cover every drug in a class.  Only covered drugs count toward the deductible and out-of-pocket limits.

Conclusion : 

We at the National Committee to Preserve Social Security and Medicare believe the Medicare Prescription Drug Improvement and Modernization Act will lead to the privatization of Medicare which could leave many seniors unable to afford health care coverage.  We remain committed to the principle that traditional, fee-for service Medicare must remain a viable option for all seniors who choose it, and that traditional Medicare should provide all seniors the option of a comprehensive, affordable prescription drug benefit. 

The prescription drug benefit is much smaller than most seniors are expecting or are entitled to receive:  

• The “doughnut hole” leaves a big gap in coverage and will continue to grow with time and at a rate reflecting health inflation, which typically rises faster than general inflation.
  
• The amount covered is far short of what seniors need. It is estimated that seniors' drug costs could total $1.8 trillion from 2006 to 2016. This law covers a fraction of these future costs.
  
• 6.2 million Medicaid beneficiaries would be vulnerable to reductions in coverage since the Medicare bill prohibits Medicaid from supplementing the new drug benefit by using federal dollars.
  
• Even though the bill includes protections for seniors up to 150 percent of the federal poverty level, it is limited by an assets test that varies by State, and could disqualify low-income seniors from receiving the benefit Congress intended.

For many seniors, the prescription drug benefit is turning out to be an illusion, offering limited federal assistance in paying for skyrocketing drug costs.  Not only is the Part D drug benefit meager, it represents another step toward privatizing the Medicare program.

For more information about the National Committee's views on the new prescription drug law, please call Member Relations at 1-800-966-1935 or check out our webpage at www.ncpssm.org.

Government Relations and Policy, May 2008