CMS Issues Final Rules for 2006 Medicare Drug Benefit

The Centers for Medicare and Medicaid Services (CMS) has issued final rules for the new 2006 Medicare prescription drug benefit (Part D) and the new Regional PPOs under Medicare Advantage (Part C). The regulations run about 2,000 pages.

The Medicare prescription drug discount card benefit that began in May 2004 will continue for the remainder of 2005, including the $600 drug credit for people with limited incomes. Information is available at local pharmacies, on the Medicare Web site at http://www.medicare.gov, or by telephone at 1-800-MEDICARE.

Enrollment Opens November 15

Enrollment for the 2006 drug benefit and Regional PPOs will begin on November 15, 2005 and end May 15, 2006. After this initial enrollment period, enrollment will be open only from November 15 to December 31 in subsequent years. Except in special situations, enrollees will be permitted to change plans only at the end of a year.

Medicare beneficiaries are not required to enroll in the new drug program; participation is voluntary. However, a Medicare beneficiary who does not enroll in the program by May 15, 2006, but later decides to enroll, will pay an extra 10 percent per year premium for each year he or she was not enrolled. An exception is made for persons with “creditable coverage” from an employer or Medigap plan at least equal in value to the Medicare benefit, who are permitted to enroll during any enrollment period without penalty.

In fall 2005, employers and Medigap plans will inform clients if their current drug coverage is creditable.

Basic Plans and More

The drug benefit will be provided by private plans in 34 regions. Some states are regions by themselves. Other regions are multi-state; Indiana and Kentucky, for example, constitute a region. All Medicare beneficiaries in a region must be offered the same benefits at the same premium. A plan sponsor is permitted to offer different plans at different premiums in different regions.

The law provides for a standard benefit. The estimated premium for 2006 will be about $35 per month to cover about 25 percent of the program costs. The standard benefit will be:

To meet the 5 percent catastrophic limit, the beneficiary must pay $3,600 true-out-of-pocket (TrOOP) personally, or by another person, or through a charity or state Pharmacy Assistance Program. Benefits paid by employer plans or Medigap do not count toward TrOOP.

Plan sponsors will be allowed to offer alternatives to the standard benefit, but all basic plans must be at least actuarially equivalent to the standard. Plan sponsors offering a basic plan in a region also will be allowed to offer supplemental drug coverage with an additional premium. Plans will be permitted to use a drug formulary but must cover any drug that a person’s physician insists is necessary for that individual’s condition.

Benefits Vary by Income

Medicare beneficiaries with incomes less than 150 percent of poverty and assets, exclusive of a house or car, valued at less than $10,000 (singles) and $20,000 (couples) will receive much better benefits than other beneficiaries. In some cases, these beneficiaries will pay as little as $2 per month for a generic drug, and $5 for a brand-name drug, with no monthly premium or deductible. CMS estimates about 11 million Medicare beneficiaries will qualify for this benefit.

Beneficiaries whose incomes are less than 100 percent of poverty who are enrolled in both Medicare and Medicaid will have their drug coverage shifted from Medicaid to Medicare. They will pay $1 per month for a generic drug and $3 for a brand-name drug, with no premium.

Some Medigap plans cover drugs, while others do not. The plans that do not cover drugs will not be affected by the 2006 drug benefit. Those policyholders will simply decide whether to keep their current coverage or join a new Medicare drug-only plan or new Regional PPO.

Beginning in 2006, Medigap policies no longer will be sold with a drug benefit, but current Medigap policyholders are permitted to keep their drug coverage. All Medigap policyholders will receive a letter from their Medigap insurer stating if their drug benefit is “creditable” (at least equal in value to the new Medicare benefit).

Those policyholders also will be told how much the Medigap premium would decrease if they dropped Medigap drug coverage and joined a new Medicare Part D plan instead. Medigap policyholders exercising this option would retain all the other benefits of their Medigap policies.

The Bush administration and CMS believe beneficiaries will save substantial sums of money by switching, because the premium paid by enrollees in the Medicare drug program covers only about 25 percent of the benefit cost; taxpayers subsidize the remaining 75 percent. Nevertheless, policyholders are not required to switch from Medigap drug coverage to Medicare drug coverage; the decision is voluntary.

Employers providing drug benefits to retirees will be taxpayer-subsidized if their retirees remain in the employer’s plan, and if the employer continues to offer a benefit at least in equal in value to Medicare’s new coverage. The subsidy will be 28 percent of a retiree’s drug costs in 2006, between $250 and $5,000. Some employers might choose to pay a retiree’s Medicare drug benefit premium and/or cover some coinsurance, but those employers would not receive a subsidy if the value of their benefit is less than the Medicare benefit. Nothing in the law requires employers to do anything.

Regional PPOs

The other big change coming in 2006 is the creation of Regional PPOs. The Medicare reform measure divided the country into 26 PPO regions. A plan sponsor must offer all Medicare beneficiaries in a region the same benefits at the same price, but that plan sponsor could offer different packages in a neighboring region. A person who joins a Regional PPO or stays in a current local Medicare HMO under Medicare Advantage remains in Medicare but receives all of his or her health care from the managed care plan under Part C.

The decision to join a drug-only plan or Regional PPO is completely voluntary. A Medicare beneficiary who does not want to change his or her current coverage will not be required to change anything, with one exception: Medicare/Medicaid dual-eligibles will be switched to a new Medicare drug plan, but they will continue to receive their current Medicaid coverage for hospital and doctor needs.

Involvement by the States

The states have been, and will continue to be, greatly involved in this law.

States are reporting monthly to CMS regarding their Medicaid clients and people qualifying for other low-income benefits, such as the Medicare Savings Program, paying the Medicare premiums, and State Pharmacy Assistance Programs. CMS will use the information to identify people deemed to be eligible for the low-income subsidy, and those people will receive special help and encouragement with the enrollment process.

There is much concern about transferring the dual-eligibles’ drug coverage to Medicare because there will be many plans to choose from with different formularies, and many clients may be unable to do this on their own. To ensure no one loses coverage, CMS will auto-enroll dual-eligibles in new Medicare plans on a random basis, with clients being allowed to choose a different plan if so desired.

States have a large role in finding and enrolling people in the low-income benefits. Many of these people are currently enrolled in the Medicare drug discount program with a $600 annual drug credit, and they will need to choose a new Medicare Part D or Part C plan.

Social Security and Medicaid will both enroll people in the low-income benefits, with Medicaid encouraged to use Social Security’s application forms and refer as many people as possible to Social Security for processing.

This process is expected to “find” many people who do not know they qualify for help with their Medicare premiums, deductibles, and co-pays. Medicaid offices are solely responsible for enrolling people in these benefits, which are separate from the drug benefit. The states must re-certify each of these clients once a year.

Many states currently have their own pharmacy assistance programs benefitting many of the low-income seniors who will qualify for benefits from the Medicaid law. States must decide how to change their programs to not duplicate the new federal coverage. For example, a state might decide to cover the $2 and $5 low-income co-pays, or it might provide more help to people with incomes greater than 150 percent of poverty.

In early October, all Medicare beneficiaries will receive a 2006 Medicare and You Handbook outlining options in their state. On October 13, specific plan information will be available online at http://www.medicare.gov.

The federal government provides money to each state for the Senior Health Insurance Program (SHIP), which provides counseling to help seniors understand the various government medical benefits available to them. The federal government also provides money under the Older Americans Act for each state to provide services to its seniors, including information and referral.

Ed McClain ([email protected]) is the senior citizen advocate for Golden Rule Insurance Company, hired in 1997 to help senior citizens better understand government benefits to which they are or may be entitled, including Social Security, Medicare, and Medicaid. He writes a yearly brochure, “Government Programs for Seniors,” explaining these benefits.

For more information …

The new rules, and any updates that might be made in 2005, are available online at http://www.cms.gov.