Financial Awareness Bulletins

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Vol. XIV, No. 3
November 2005

Medicare Part D

Summary

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 added Medicare Part D – an outpatient prescription drug plan. The coverage begins in 2006. Private firms will administer the new outpatient drug benefit. The Part D premium is projected to cost the participant about $32 - $37 per month.

INTRODUCTION

This Financial Awareness Bulletin provides an overview of the new prescription drug component of Medicare (Part D).

MEDICARE

Medicare is an entitlement program funded primarily by payroll taxes. Age and work history determine eligibility. U.S. citizens age 65 and older, as well as severely disabled individuals, qualify for Medicare coverage. Many other residents may also qualify, although non-citizen eligibility rules have been tightened in recent years. There are currently four parts to Medicare coverage:

Part A is known as hospital insurance and is free to people at age 65 and older who have contributed to the Federal Insurance Contribution Act (FICA) over their working years. Those covered by Medicare Part A insurance must pay an initial amount towards their hospital bill before Medicare coverage kicks in.

Part B is insurance that helps cover basic medical services provided by physicians, clinics and laboratories. Part B is not free; participants must first meet a deductible and also pay a monthly premium, both of which increase every January 1.

Part C, known as “Medicare Advantage,” is an HMO or PPO option that replaces Parts A, B, and usually D.

Part D is the new Medicare Prescription Drug Plan, due to go into effect on January 1, 2006.

MEDICARE PART D

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 added Medicare Part D. Beginning in 2006, insurance companies will create and administer outpatient drug benefit plans. Those companies approved to offer plans nationally are :

Aetna Life Insurance Company

Connecticut General Life Insurance Company

Medco MemberHealth Inc.

PacifiCare Life & Health Insurance Company

Silverscript Insurance Company

UniCare

UnitedHealth Group Inc.

WellCare Health Plans Inc.

Several other companies have been approved to provide regional coverage. Additional information can be found at www.medicare.gov.

Benefit Amount

Part D starts out with a $250 deductible in 2006 and will pay:

75% of the next $2,000 spent;

Nothing for the next $2,850 spent; and

95% of your remaining drug costs.

The deductible and cost-sharing limits can, and probably will, be adjusted in future years. The Part D premium for the basic benefits mandated by Medicare is projected to cost the participant about $32 - $37 per month. Insurance companies may offer higher levels of benefits at additional cost.

Each insurance company’s prescription drug plan has a list of drugs it will cover, called a formulary. The government has not established a uniform list of drugs that every plan must cover, so consumers will have to compare the formularies offered by each plan available to them. All plans must include coverage of certain drugs commonly prescribed to elderly and disabled people. Each formulary category and class must include at least two drugs (if available), but the specific drugs allowed within a category or class may be changed with 30 days’ notice. Medicare has developed a “Formulary Finder” at http://plancompare.medicare.gov/formularyfinder/selectstate.asp.

The government guarantees drug coverage in any region that does not have at least one stand-alone drug plan and one Part C plan. School districts and other employers that offer equivalent drug coverage for retirees can receive tax-free subsidies.

Help for Seniors and Disabled Individuals

Starting in 2006, lower-income seniors and disabled individuals can receive additional help in paying for prescription drugs:

People eligible for both Medicaid and Medicare will pay no premium or deductible and have no gap in coverage. They will pay $1 per prescription for generics and $3 for brand names (co-pays are waived for those in nursing homes).

People with incomes below about $13,000 ($17,600 for couples) in 2006 and assets of under $6,000 ($9,000 for couples) will pay no premium or deductible and have no gaps in coverage. They will pay $2 for generics, $5 for brand names, and nothing above the catastrophic limit.

People with incomes between $13,000 and $14,400 ($17,600 and $19,500 for couples) in 2006 and assets under $10,000 ($20,000 for couples) will pay premiums on a sliding scale, a $50 deductible and 15 percent of drug costs with no gaps in coverage. After spending $3,600 out-of-pocket in a year, co-pays will be $2 for generics, $5 for brand names.

Prescription Drug Discount Card

Prior to 2006, Medicare recipients could buy a prescription drug discount card authorized by the Centers for Medicare and Medicaid Services. These cards are no longer available after December 31, 2005. Participants’ coverage ends when they sign up for Part D or, at the latest, by May 14, 2006.

Enrollment Period

Once you are eligible for Part D, you should receive a Disclosure Notice from your current health plan. The notice will inform you whether you have Creditable Coverage so you can decide whether to enroll in Part D.

If you do not have Creditable Coverage and do not enroll in Part D when first eligible, you may have to wait until the following November 15 to December 31 enrollment period to join Part D. In addition, you will have to pay a higher monthly premium. You will face a late enrollment penalty of at least one percent per month if you decide to enroll late. You can avoid this penalty if 1) you enroll in Part D during the Enrollment Period when you are first eligible or 2) if you enroll after the Enrollment Period but demonstrate that you had no lapse greater than 62 days in coverage under your health plan that provided Creditable Coverage.

NEA MEMBER BENEFITS

Additional information about Medicare Part D and the NEA MemberCare® Medicare Supplement Program can be found at http://www.neamb.com/insurance/mcspge.jsp. Be sure to view the Medicare video and reference the Q&A page.

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