V I E W P O I N T

THE NEW MEDICARE LAW :: THE PRESCRIPTION DRUG DISCOUNT CARD

On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003.   The new law created a temporary Medicare- approved drug discount card that seniors can use to purchase drugs at discounted prices between June 2004 and December 2005. The discount cards will only b e available until the permanent prescription drug benefit begins in January 2006.

The drug discount cards are offered by private companies because the law prohibits the Centers for Medicare and Medicaid Services (CMS) from offering the discount cards directly. Only private companies that meet certain requirements and receive the approval of CMS are authorized to offer the cards.  Beneficiaries have a choice of at least two cards in each state. Almost 50 managed-care companies also offer Medicare-approved cards to their members.  Sponsors can charge up to $30 per year for the cards. 

The drugs covered and discounts offered vary from card to card.  In addition, certain pharmacies only accept certain discount cards.  Some cards offer “open formularies”, which means they provide discounts on all drugs. Other cards provide discounts only on certain drugs, but they may offer greater savings on those drugs than sponsors with open formularies. Card sponsors are not required to provide any type of minimum discount, nor are they required from keeping the retail price of the drugs from increasing to compensate for any discount. CMS estimates discounts averaging 12 to 21 percent off the retail prices of the drugs covered, with potentially higher savings on generic brands. Depending on the combination of drugs used by a particular senior, they may or may not have any significant savings.

The drug discount cards provide seniors with low incomes additional financial assistance to purchase prescription drugs.  Specifically, seniors with incomes of less than $12,920 in 2005 ($17,321 for couples) who don't have prescription drug benefits through Medicaid, group health insurance, or a previous employer (including the military) do not have to pay for the card, and can receive $600 toward the cost of their drugs. Any portion of the $600 not used in 2004 can be rolled over to 2005. Some sponsors are offering reduced-price or no-cost drugs to low-income seniors who exhaust the $600 benefit.

Concerns about the discount cards:

Selecting a card is a confusing process lacking appropriate consumer protections. Selecting a card from the competing plans has been confusing for many Medicare beneficiaries because the sponsors can change both the drugs and the discounts on those drugs weekly.  Even those seniors who research the cards carefully can't be sure they'll end up with the best deal. Meanwhile, seniors are only allowed to have one Medicare-approved card at a time. Changing from one card to another was only allowed from mid-November 2004 until the end of December 2004.

Complexity and meager savings of the prescription drug card program resulted in low enrollment. As of December 2004, less than 6 million beneficiaries, including 1.5 million receiving the low-income assistance benefit had enrolled in the program. A total of 7 million individuals were eligible for the low-income subsidy. An extra effort by CMS, sending opt-in enrollment forms to 1.8 million Medicare Savings Program beneficiaries, added only 100,000 people in the subsidy program.

Drug companies are still able to artificially inflate the prices of prescription drugs. CMS has said it intends to monitor the cards to make sure senior discounts are not based on artificially-inflated prices, but, without a clear definition of what is an acceptable price increase, protecting seniors is not easy. And we are not aware of any federal agency investigating the significant increase in prescription drug prices prior to the cards being issued to determine whether those increases were warranted.

Con artists have used fake drug cards to target seniors. It has been reported that unauthorized salespersons were going door-to-door or calling by phone to sell Medicare-approved cards that have not been authorized by CMS. In addition to selling fake cards, in some cases these salespeople have attempted to get personal information from targeted seniors, as a first step toward identity theft. Seniors should not be fooled by these con artists, and should never give their Medicare or Social Security numbers to anyone over the phone or at the door. Legitimate cards are only marketed by mail or through the Medicare website.

Conclusion:

The Medicare-approved drug discount card provides some help to low-income seniors who qualify for the $600 benefit. Most seniors, however, find the selection process confusing, and are unlikely to receive better discounts than they currently get through the other privately-sponsored cards that are already on the market. Further, the discount cards are not available through the Medicare program, only though the private companies administering the cards. This begins the trend of placing the traditional Medicare program in the hands of private companies. 

The National Committee to Preserve Social Security and Medicare remains committed to the principle that traditional, fee-for service Medicare -- with its structure of benefits and beneficiary responsibilities that are specifically defined in law -- must remain a viable option for all seniors who choose it. We will dedicate our efforts to restore the equity between private plan options and traditional Medicare that has been undermined by the new law.

For more information about the new prescription drug law, call 1-800-MEDICARE (633-4227) or visit CMS on the web at www.Medicare.gov. For more information about the National Committee's views on the new law, please call Member Relations at 1-800-966-1935 or check out our website at www.ncpssm.org.

Government Relations and Policy/Policy Research, February, 2005