When Congress passed the Medicare Prescription Drug Modernization Act in 2003, the January 1, 2006, implementation date seemed far away. With that date fast approaching, a huge cottage industry is developing, and our senior population is about to be overwhelmed by advertisements, articles and solicitations. It is important that employees who are eligible for benefits under the new law take a step-by-step approach to considering their existing coverage, future needs, and available options. This will eliminate anxiety and bring some clarity to a potentially confusing situations.

Availability

If you are eligible for Medicare, you are eligible to enroll in Medicare Part D. That said, enrollment is not mandatory, and in some cases may not be the best choice. For example, if your employer or former employer offers a prescription drug program that meets or exceeds the government’s standards, called creditable coverage, you may consider passing on Part D for the time being. You will still have the option of enrolling in Medicare Par D later without the late enrollment fees explained below.

Although Medicare Part D is funded by the federal government, it will be administered by private insurance companies through government-approved Prescription Drug Plans or PDP’s. Within this new benefit, two types of plans will be offered: one that covers prescription drugs only and one that covers doctor’s visits, hospital stays and prescriptions.  The latter, called Medicare Advantage Plans, are not available in every part of the country. If you currently have a Medicare Supplement policy that includes prescription drug coverage, you must change it to exclude prescription drug coverage in order to be eligible for Medicare Part D.

Enrollment

Companies will begin to provide the details of their Part D plans beginning October 1, 2005, and you may enroll beginning on November 15, 2005. The enrollment deadline is May 15, 2006. This deadline is important because if you wait until after this date to enroll, your premium will be increased by one percent per month for every month you delay. The increased premium is permanent, which means you will pay the higher rate as long as you are enrolled in a Part D plan.

If you choose to enroll by December 31, 2005, your Part D plan will become active on January 1, 2006. You will be able to change plans during the annual open enrollment period of November 15 through December 31 or at other times during the year under special circumstances such as moving outside your plan’s area of coverage.

Plan Coverage and Premium

Your Medicare Part D benefit is structured to share prescription drug costs between you and your Medicare Prescription Drug Plan (PDP) while protecting you from catastrophic expenses.  Medicare is contracting with a number of PDP’s to offer this coverage. The PDP’s will offer a variety of options with different covered prescriptions and different costs. You may choose the PDP that best fits your needs.

If you enroll in a Medicare Prescription Drug Plan, you will pay a monthly premium (approximately $31 - $35 in 2006). After you have reached the deductible ($250 per calendar year), Medicare will pay 75% of your drug costs, and you will pay 25% coinsurance up to the next $2,000 in drug costs, then you will be responsible for 100% of the drug costs between $2,250 and $5,100.  If your total drug costs exceed $5,100 during the calendar year, then Medicare will pay 95% of the excess costs, and you will pay 5% until the end of the calendar year.

While PDP’s vary, all plans will have a cost sharing until the beneficiaries reach their true “out of pocket” expense (commonly referred to as TrOOP). In 2006, TrOOP will be $3,600. Once you have reached the TrOOP amount, the catastrophic component of Medicare D is activated. At this point the cost share generally becomes 5%.

Here is an overview of the way coverage is structured:

• You are responsible for the deductible amount of $250.
• Between $250 and $2,250 in prescription costs, you pay 25% and Medicare pays 75%
• From $2,250 up to a total of $5,100 in drug spending (or $3,600 in out-of-pocket expenses), you pay 100% of prescription costs. This portion of the plan is commonly referred to as the coverage gap.
• Once the out-of-pocket of $3,600 has been reached, Medicare pays 95% of prescription drug costs in a calendar year.

It should be noted that there will be extra help for paying these costs for some people with limited income and resources.

• (This is the base plan as presented by the MMA: it is important to note that PDP’s may offer plans that could differ in deductibles, coinsurance etc. They may also offer an enhanced benefit).

Drugs Covered

Many prescription drugs including brand name and generic drugs are covered. The PDP’s will offer a variety of options with different covered prescriptions and different costs. Each Part D plan will have a list of generic and brand name drugs, called a formulary, approved by Medicare. Plans will also include a network of pharmacies at which you may be required to fill your prescriptions.

When shopping for a Part D plan, make sure not only that your current prescriptions are in their formulary, but also that the pharmacies in their network are convenient to you. A formulary exemption process will be put in place to provide coverage for drugs outside your plan’s formulary if your doctor determines this is necessary. Pharmacies within each network will be linked by a Medical Management System which will alert pharmacists to harmful drug interactions in case of multiple prescriptions.

The Medicare Prescription Drug Modernization Act will provide a safety net against the catastrophic prescription drug costs that have wreaked havoc with the finances of so many retired Americans. The enrollment deadline is eight months away, so retirees have plenty of time to compare their existing coverage with what Medicare D has to offer and to shop for the best plan for them. If your employer intends to offer creditable coverage next year, the May deadline doesn’t apply to you and you may want to delay considering Medicare D coverage, which you may do at no penalty. However, if creditable coverage is not available, you would be wise to consider enrolling in Part D Plan before May to lock in the lowest premium.

For Retirees Covered by Employer Plans

You may be one of the lucky retirees to be covered by your former employer’s health care plans.  Congratulations.  It is becoming a very rare phenomenon.  The employer plan may include coverage for prescription drugs.  If the coverage is considered “creditable coverage” compared to Part D of Medicare, then you do not have to enroll in a Medicare Part D Prescription Drug Plan.  Your employer will supply you with a “Notice of Creditable Coverage”, which you should retain in your records so you can avoid paying the late enrollment penalty when you do enroll in Part D at a later date.  Many employers that currently provide prescription drug coverage to their retirees will be able to obtain a “subsidy” from the federal government based on the actual costs reimbursed by the employer plan.  This subsidy is available, however, only if the retiree does not enroll in a Part D Prescription Drug Plan.  There is also a great deal of paperwork for the employer to complete to obtain the subsidy, and many employers will simply avoid the hassles.

So what does this mean for a retiree?

Here are the steps a retiree should take to determine the best approach for their prescription drug needs:

1. Are you over age 65, disabled under Social Security for more than 24 months, or been diagnosed with End Stage Renal Disease (Kidney disease and dialysis)?  If yes, then you are eligible to consider enrolling for Part D Prescription Drug Benefits effective January 1, 2006.
2. Are you covered by your former employer’s health care plan?  If yes, does the plan offer reimbursement for outpatient prescription drugs (drug card)?  If yes, have you received a “Notice of Creditable Coverage”?  If yes, then you do not need to enroll for a Part D Prescription Drug Benefit, and you can avoid the late enrollment penalty if/when you do enroll in a plan.  If your employer’s plan does not offer “creditable coverage”, then you will need to look at enrolling for a Part D Prescription Drug Plan.  Note that most employer plans will meet the criteria for the “creditable coverage” in today’s benefit plans.  This may change over time as employers adapt their plans to the increasing costs and available Part D plans.
3. If you are not covered by your employer’s plan, then you should consider enrolling in a qualified Prescription Drug Plan (PDP) or a Medicare Advantage Plan that includes prescription drug coverage.  The available plans will vary by location, so you will need to do some research on your local options.