Poorest to reap most from Medicare Part D drug plan

But 7 million may have more out-of-pocket expenses

Low-income people with Medicare who sign up for new Part D drug plans and receive the additional subsidies — an estimated 8.7 million people — are projected to pay 83% less for prescription drugs in 2006 than they would have spent if the Medicare drug law had not been enacted, according to a recent report by the Kaiser Family Foundation. Patients who enroll in the new drug benefit but do not receive the low-income subsidies — an estimated 20.3 million people — are projected to pay on average 28% less out of pocket for their prescription drugs as a result of the new law, the analysis finds.

The report is based on a model developed by Actuarial Research Corporation (ARC) for the Menlo Park, CA-based Kaiser foundation, and estimates out-of-pocket drug spending in 2006 among the 29 million people the Congressional Budget Office (CBO) expects will sign up for Medicare drug plans.

"This analysis shows that the prescription drug law will provide the most help to seniors with low incomes and very high drug bills, just as Congress intended," foundation president Drew Altman, PhD, says. "Congress faced budget constraints and had to make trade-off decisions. The question is whether the law they passed will meet seniors’ expectations."

The simulation model generally conforms to CBO’s assumptions and projections about Medicare drug benefit spending and participation rates for the new benefit, known as Medicare Part D, and for the low-income subsidy. The projections of out-of-pocket drug spending are based on the likely response of Medicare beneficiaries to the new law. They do not reflect the effects of supplemental coverage that beneficiaries might obtain or take into account premiums paid by beneficiaries, which are estimated by CBO to average $420 for the new Medicare benefit in 2006.

Most help for beneficiaries with low incomes

The Medicare drug law targets substantial resources to low-income beneficiaries. To qualify for the law’s low-income subsidies, people with Medicare must have annual incomes of less than 150% of the federal poverty level and limited assets, or must qualify for full Medicaid benefits. Those who receive the low-income subsidies are projected to pay 83% less on out-of-pocket drug costs in 2006.

However, Part D enrollees who meet the income requirements but do not receive the additional financial assistance, either because of their assets or because they do not sign up for the extra help, will pay substantially more than they would if they were to receive low-income subsidies, the foundation report states.

For example, Medicare beneficiaries with incomes that fall below 100% of the federal poverty level (in 2004, $9,310 for an individual) who enroll in the benefit and receive low-income subsidies are projected to spend, on average, $90 out of pocket for drugs in 2006. The estimated 2 million people at that income level who do not receive the additional subsidy are projected to spend 10 times as much, or $943 on average.

"Low-income subsidies will clearly make an enormous difference for many seniors struggling to pay for their prescriptions, but unfortunately, many are expected to go without this extra assistance," says Tricia Neuman, ScD, Kaiser foundation vice president and director of the Medicare Policy Project. "This demonstrates the need for an all-out effort to help low-income people on Medicare get the assistance promised by the new law."

Almost 7 million in doughnut hole’

The new analysis projects that 6.9 million people — or nearly one in four who sign up for the new drug benefit — could have spending in what the foundation calls "the doughnut hole," where those with total drug costs exceeding the initial benefit limit ($2,250 in 2006) are projected to have out-of-pocket costs exceeding $750 in 2006. Of the 6.9 million people who are expected to reach the doughnut hole in 2006, 2 million people (28%) have incomes less than 150% of the federal poverty level (in 2004, $13,965 for an individual); 2.8 million (42%) are in fair or poor health; and 3.8 million (55%) are women.

According to this analysis, the new drug benefit will substantially reduce projected average per capita out-of-pocket spending among Part D participants whose spending exceeds the $3,600 out-of-pocket catastrophic threshold. Nearly half (3.1 million people) of those who reach the doughnut hole are projected to receive catastrophic coverage under the new benefit because they incur at least $3,600 in out-of-pocket drug costs. Under the new law, this group is expected to pay $3,784 out-of-pocket, on average, in 2006, compared with a projected $5,980 on average in the absence of the new law — a reduction of 37%.

Overall, the analysis projects that three out of four who enroll in plans offering the new benefit (21.6 million people) are expected to have the same or lower out-of-pocket spending in 2006 than they would have without the new Medicare drug law.

The other one in four (7.4 million people) are expected to have higher out-of-pocket spending without taking into account the premium costs for the new coverage, unless they get supplemental coverage from another source. For most (about 5 million people), the increases are expected to be modest — $250 or less. This group includes many people with limited incomes who currently pay little or nothing for prescription drugs under their state Medicaid program, as well as people with low drug spending who currently have coverage for prescription drugs with a low or no deductible (such as through a Medicare Advantage plan). Under the standard Medicare drug benefit they will have to pay a $250 deductible before coverage begins, thus raising out-of-pocket costs above previous levels.

The 2.4 million people who are projected to face even higher out-of-pocket costs under the new drug benefit in 2006 includes those with relatively high out-of-pocket drug costs who are projected to lose access to more generous prescription drug coverage than the new Medicare benefit provides, especially people who lose their employer plan coverage.

"Most are projected to get helped, and some will get helped more than others, but in any single year we would expect one in four to spend more out of pocket under Part D than they would have under the prior system," wrote Jim Mays, the report’s lead author and ARC vice president.

Sources

  • Drew Altman, PhD, President, Kaiser Family Foundation, 2400 Sand Hill Road, Menlo Park, CA 94025. Phone: (650) 854-9400. Fax: (650) 854-4800.
  • Tricia Neuman, ScD, Vice President, Kaiser Family Foundation; director, Medicare Policy Project. E-mail: medicare@kff.org.
  • The Kaiser Family Foundation’s report on Medicare’s Part D drug program, "Estimates of Medicare Beneficiaries’ Out-of-Pocket Drug Spending in 2006: Modeling the Impact of the MMA," is available on-line in PDF format at: www.kff.org/medicare/med112204pkg.cfm.