What You Need to Know: The New Medicare Prescription Drug Coverage
Making a Decision About Medicare Prescription Drugs
- Introduction
- How Does Medicare Prescription Drug Coverage Work?
- Making a Decision About Medicare Prescription Drug Coverage
- Choosing a Medicare Prescription Drug Plan
- Joining a Medicare Prescription Drug Plan
- Where to Go for More Help
- Key Words and Definitions
Do I really need prescription drug coverage now?
If you don’t take any medications right now, or need them only occasionally, you’re likely wondering if it’s worth signing up. After all, you’d have to pay the premiums even if you didn’t need any prescriptions.
But you also need to think about the future. Like any insurance, drug coverage gives you protection against high drug costs if and when you need it. Here are some facts to consider. On average, someone age 75-79 will spend 25% more on drugs than someone 65-69. Also, almost one in five people with Medicare is projected to incur $5,000 or more in drug costs during 2006.
Can I wait and sign up for Medicare drug coverage later when I need it?
You can. Medicare drug coverage is voluntary, so you can sign up if you like or not at all. But there may be a financial penalty if you want to enroll later than the time when you were first eligible.
With some exceptions, the penalty for signing up late is a higher premium—an extra 1% of the national average premium for each month (or 12% for each year) that you delay. The longer you wait to join up, the higher your premium will be. For example, if you delay eight years, you’ll pay nearly double for the same coverage. The penalty adds up quickly, and you will have to pay it for as long as you have Medicare drug coverage.
If you are already on Medicare, the time to sign up without incurring a penalty is between November 15, 2005 and May 15, 2006. After this, most people won’t get another chance until the next enrollment period at the end of 2006. (People not yet on Medicare will be able to join a drug plan whenever they become eligible for Medicare.)
What if you don’t sign up for Medicare drug coverage now because you already have coverage from an employer or some other source? If you someday lose that coverage, you won’t have to pay a late penalty to join Medicare’s program—provided that the coverage you lost was at least as good as Medicare’s as explained below.
An example of how the late penalty works:
Jill is already in Medicare and eligible to join a Medicare prescription drug plan in May 2006, but she doesn’t. In November 2008, she decides to sign up for coverage beginning in 2009. She is 31 months late in enrolling, which means she has to pay the late penalty. Here’s what happens:
- By 2009, the average national premium has risen to (let’s say) $46 a month. Jill’s late enrollment penalty is computed at 1% x 31 months x $46 which comes to $14.26 a month.
- So Jill must pay $14.26 in addition to the plan’s premium. In 2009, her monthly premium is $60.26 instead of $46.
- As the average premium rises in future years, so does the late penalty. In 2010, the average premium is (say) $49, so Jill’s late penalty will be 1% x 31 months x $49 which comes to $15.19. Her total premium would be $64.19 ($15.19 + $49).
What if I already have prescription drug coverage or discounts?
People right now use many different ways to help pay for their prescription drugs. You need to consider how what you have now may be affected by the new changes to Medicare, and how it compares with what you would get from Medicare drug coverage.
If you have drug coverage from your current job or a retiree benefit:
Your current or former employer or union will tell you if your present plan will change because of Medicare’s new drug coverage. These are their main options:
- They may continue to offer drug coverage as they do now. If so, check with your former employer or union to see whether your coverage is as good as Medicare’s.
- They may continue offering drug coverage through a new Medicare drug plan. You will need to enroll in this plan to maintain your employer’s coverage.
- They may offer drug coverage that adds to Medicare’s, as some do for other health benefits you receive. You will need to enroll in a Medicare drug plan, but your employer will cover some or all of your out-of-pocket costs.
- They may drop your current drug coverage—maybe helping toward the cost of your Medicare drug premium, or perhaps giving no help at all.
The Medicare drug law offers employers large federal subsidies to continue their coverage. Recent surveys show that most employers are expected not to drop it.
How do I tell if my current coverage is better or worse than I could get from Medicare?
Your employer or union must give you this important information. You should receive written notice saying whether or not your coverage is “creditable”—that is, at least as good as Medicare’s. If you don’t receive this information by the end of October 2005, call them and ask them to let you know in writing if you have creditable coverage. Keep this written notice in a safe place so that you can use it to document your coverage if you later decide to enroll in a Medicare prescription drug plan.
What happens if my employer drops my current drug coverage at some future date?
You will then be able to enroll in a Medicare drug plan without incurring a late penalty—as long as the coverage you had was “creditable” and you sign up for a Medicare plan within 63 days of losing your previous coverage.
If you have drug coverage from a Medigap plan:
Some Medigap insurance plans (also known as Medicare Supplemental Insurance) help pay for prescription drugs and some do not.
If your Medigap plan does not cover drugs, you can keep it unchanged. And if you now decide you’d like to have drug coverage, you can also sign up for a Medicare drug plan.
Some Medigap plans do cover prescription drugs. You cannot have one of these Medigap plans and a Medicare prescription drug plan. You must choose between the two. However, you can decide to keep the Medigap policy, but drop the prescription drug coverage. Then, you can enroll in a Medicare prescription drug plan. Keep in mind:
- If you currently have Medigap, you can keep your Medigap drug coverage. But in future years if you change your mind and enroll in a Medicare drug plan instead, you will likely pay a late penalty. That’s because very few Medigap policies offer drug coverage that is as good as Medicare’s.
- Starting in January 2006, no Medigap policies with drug coverage will be sold. This means that no new people will be able to enroll in a Medigap plan’s drug benefit. This could cause Medigap premiums to rise over time.
- If you have a Medigap plan with prescription drug coverage, your Medigap insurer must send you a letter by mid-November to tell you how your policy’s drug coverage compares with Medicare’s. If you do not receive this letter, call your Medigap insurer and ask for it.
If you have drug coverage from your state Medicaid program:
If you get both Medicare and Medicaid, or you get Supplemental Security Income, or your state pays your Medicare premiums, you automatically qualify for extra help to pay almost all of your drug costs. Beginning January 1, 2006, you will get your drugs from Medicare instead of Medicaid. (Note that the Medicaid program in your state may have a different name—for example, Med-Cal in California, TennCare in Tennessee.) To learn more, see Extra Help for People with Limited Incomes.
If you get help now from a state pharmacy assistance program:
If you are in a state-run pharmacy program (other than Medicaid) that helps you pay for prescription drugs, it may coordinate coverage with the new Medicare drug coverage to give you even greater savings. Each state will decide how its program will work with Medicare drug plans. You should check with your state program to find out what will happen. To learn more about the program, call your local State Health Insurance Assistance Program (SHIP) or your local Area Agency on Aging. For contact information, see Where to Go for more Help.
Read this if you have veterans or military retiree drug benefits
If you feel that the drug coverage you receive from the Veterans Administration health care system meets your needs and you decide not to join a Medicare drug plan now, you won’t have to pay a higher monthly premium for your Medicare drug plan if you join later. Military retirees and their dependents enrolled in the TriCare senior pharmacy program can stay in it. TriCare’s drug benefit is considered “creditable” coverage. If you have a limited income that qualifies you for Medicare’s extra help in paying for drugs, see Extra Help for People with Limited Incomes.
If you get drugs from a Manufacturer’s Patient Assistance Program:
If you now get one or more of your drugs free or at low cost from one of the assistance programs run by prescription drug manufacturers, you may be able to continue to do so as well as have Medicare drug coverage—as long as you still qualify for the drug company’s program. You’ll need to check. Some companies may continue providing drugs to people in Medicare drug plans and some may not.
If you qualify for Medicare’s Extra Help for people on limited incomes, you may not need to get drugs from a manufacturer any more. If you don’t qualify for extra help, but you sign up for Medicare’s standard drug coverage, you may be able to continue to get drugs from a manufacturer.
If you now have a Medicare drug discount card:
If you signed up for a Medicare-approved drug discount card, it is important to know that this program will stop in 2006. You will be able to continue using your card until May 15, 2006 or until you sign up for Medicare drug coverage, whichever is sooner. After that, you will not be able to use it any more.
If you sign up for a Medicare prescription drug plan, you’ll receive that plan’s prescription drug card. Do not confuse your plan’s prescription drug card with the Medicare-approved drug discount card you may have signed up for in 2004 or 2005.
If you now buy low-cost drugs from Canada or other foreign countries:
Although the practice is still illegal, many Americans have found relief from high U.S. prices by buying drugs from abroad, mainly Canada, where they usually cost less. Many now wonder if continuing to do so would be less costly than signing up for Medicare drug coverage. Here are things to consider:
- What if Canada does not allow drugs to be exported? They haven’t so far, but Canadian pharmacists have come under heavy commercial and political pressure to stop selling to Americans.
- If you suddenly need very expensive drugs in the future or your total costs become very high, Medicare’s catastrophic coverage would give far greater protection than low foreign prices.
If you sign up for standard Medicare drug coverage, your plan will not cover drugs purchased from abroad. You may pay less for drugs in the coverage gap by buying from abroad, but they would not count toward your out-of-pocket maximum that qualifies you for catastrophic coverage if your drug costs become high.
Decisions, decisions—let’s look at some choices people can make
Here are some examples of how Medicare prescription drug plans can help people like you in just the first year of the program. These examples are of people who have no other drug coverage and do not qualify for Extra Help for people with limited incomes. They are based on a standard Medicare prescription drug plan with an estimated monthly premium of $32 and annual deductible of $250 in 2006. Because individual plans can have different coverage features, these calculations may not apply to all plans.
Maria
Maria, a 67-year-old widow, earns a moderate income. She is generally healthy and she takes a few medications. She pays about $2,000 per year for her prescription drugs (just over $160 a month). In 2006, Maria would save $928.50 under the standard Medicare prescription drug coverage.
Maria’s Total Yearly Drug Costs in 2006
Maria Will Pay |
|
$250.00 (Deductable) $687.50 (Amount paid so far) Maria Will Pay $1,071.50 |
- Without Medicare prescription drug coverage: $2,000
- With Medicare prescription drug coverage, Maria pays $1,071.50
Here's how it works: Maria’s deductible is $250. Once Maria has paid her $250 deductible, she will still have $1,750 in drug costs in 2006. The plan will pay 75% of this amount or $1,312.50. Maria will pay the remaining 25%, which is $437.50.
Don’t forget that Maria will also pay her monthly premium ($32 per month) or about $384 a year. With a Medicare prescription drug plan, the total Maria will pay in 2006 is $1,071.50.
Compare that amount to the $2,000 Maria would have paid without Medicare’s prescription drug coverage—she saved $928.50.
Evan
Evan has a chronic condition that he controls with medicine. He spends about $4,850 a year (just over $400 a month) for his medicines. He will save quite a bit of money under the standard Medicare plan in 2006. Let’s see how.
Evan’s Total Drug Costs in 2006
Evan Will Pay |
|
$250.00 (Deductable) $750.00 (Amount paid so far) $3,350.00 (Amount paid so far) Evan Will Pay $3,734.00 |
- Without Medicare prescription drug coverage: $4,850
- With Medicare prescription drug coverage, Evan pays $3,734.
Here’s how it works: Evan’s deductible is $250. Once Evan has paid his $250 deductible, the cost of the rest of his drugs for the year is $4,600. Medicare prescription drug coverage will pay 75% of his next $2,000, so Medicare prescription drug coverage pays $1,500. Evan pays the remaining 25%, which is $500.
At this point Evan enters the Coverage Gap. He will still have $2,600 in drug costs this year. But Medicare prescription drug coverage will not pay any more of his drug costs unless he pays another $2,850. Evan will not reach this amount in 2006. His drug coverage does not kick in again this year, so he will pay $2,600 more himself.
Evan also pays his monthly premium ($32 per month), which comes to about $384 a year. With Medicare prescription drug coverage, Evan’s total payment for his drugs is $3,734.
Compare that amount to the $4,850 Evan would have paid without Medicare’s prescription drug coverage—he saved $1,116.
Juan
Juan has a medical condition that requires regular treatment. To stay as healthy as possible, he takes many drugs to keep his condition under control. Each year, he spends about $7,800 ($650 a month) for medicines. He saves quite a bit of money under the standard Medicare prescription drug plan in 2006.
Juan’s Total Drug Costs in 2006
Juan Will Pay |
|
$250.00 (Deductable) $750.00 (Amount paid so far) $3,600.00 (Amount paid so far) $3,735.00 (Amount paid so far) Juan Will Pay $4,119.00 |
- Without Medicare prescription drug coverage: $7,800
- With Medicare prescription drug coverage, Juan pays $4,179
Here’s how it works: Juan’s deductible is $250. Once Juan has paid his $250 deductible, the cost for the rest of his drugs for the year is $7,550. The plan will pay 75% of his next $2,000 in prescription drug costs. Therefore, the plan pays $1,500 and Juan will pay the remaining 25% or $500.
At this point, Juan falls into the Coverage Gap. This means that Medicare prescription drug plan will not pay any more of his drug costs until he pays the next $2,850.
So far, Juan has received $5,100 in drugs. He has paid $3,600 and the plan has paid $1,500. He still needs another $2,700 of medication this year. Because he is no longer in the Coverage Gap, the plan will pay 95% of his remaining drug costs or $2,565. He will only have to pay 5% of the remaining costs of his prescriptions or $135.
Juan also pays his monthly premium ($32 per month) or $384 a year. With Medicare prescription drug coverage, Juan will pay a total of $4,119 for his prescriptions in 2006.
Compare that amount to the $7,800 Juan would have paid without Medicare’s prescription drug coverage—he saved $3,681.
Pam
Pam is in good health when she turns 68 years old in 2005. She has only $530 in yearly drug costs. Pam realizes that, if she stays healthy, she will actually pay more for Medicare prescription drug coverage than she might get back the first year that she is eligible. Pam has a choice to make. Her choice is to hold off enrolling in a Medicare prescription drug plan and pay a penalty on her premium if she decides to enroll later or to enroll now and have peace of mind that she will be covered if her drug expenses increase in future years.
Pam’s Total Drug Costs in 2006
Pam Will Pay |
|
$250.00 (Deductable) $320.00 (Amount paid so far) Pam Will Pay $704.00 |
- Without Medicare prescription drug coverage: $530
- With Medicare prescription drug coverage, Pam pays $704.
Here's how it works: Pam's deductible is $250. Once Pam has reached her $250 yearly deductible, Medicare will pay 75% of her costs for the next $2,000 that she spends for drugs. She will spend only $280 more before the end of the year. Medicare will pay 75% of this amount, or $210.00. Pam will pay 25% of this amount, or $70.
Pam also pays her monthly premium ($32 each month), which comes to about $384 a year. With a Medicare prescription drug plan and prescription drug coverage, Pam’s yearly out-of-pocket spending totals $704.00.
For the extra cost of $174, Pam decides to get Medicare prescription drug coverage when it is first offered. Although she will pay more than just the cost of the prescriptions at first, she has peace of mind knowing that Medicare’s pre-scription drug coverage is insurance against rising drug costs in the future. And by signing up now, she will avoid having to pay a penalty in the form of higher yearly premiums if she waits to join later.
Compare that amount to the $530 Pam pays without Medicare’s prescription drug coverage—she pays $174 more.
