Making Sense of the Medicare Prescription Drug Plan

The newly added Medicare Prescription Drug Plan, also referred to as Part D, is due to go into effect January 1, 2006. And even with all the information that seniors had been inundated with this past fall, many are still left wondering how to make sense of this program. Very simply, beginning in January 2006, for the first time Medicare will provide prescription drug coverage for those that are eligible for the federal government’s Medicare health insurance program. However, the confusion starts here because enrollment in the Prescription Drug plan is optional, but if the beneficiaries do not enroll by the May 15, 2006 deadline, they risk paying a permanent surcharge on their premium, which increases at a rate of 1% per month. For instance, delaying enrollment for six months could increase the monthly premium by 6 percent.

As a practical matter, the best place to start will be to look at how it affects your pocketbook. The Medicare Prescription Drug plans will be offered by insurance companies and other private companies approved by Medicare, and these plans will offer at least the standard level of coverage which consists of the following:

• a monthly premium which will vary depending on the plan you choose.
• a $250 annual deductible, which is the first $250 of the annual cost of the drugs.
• a 25% co-pay for the next $2,000 in drug costs with the Medicare Prescription Drug plan paying the other 75% of these costs.
• There is also a coverage gap period, referred to as the “doughnut hole”, where the beneficiary pays 100% of the next $2,850 in drug costs.
• After that, the beneficiary has a 5% co-pay for the rest of the calendar year after the $3,600 in out-of-pocket costs.

Of all the features in the new Medicare Prescription Drug plan, the most confusing and probably the most controversial aspect appears to be this “doughnut hole” coverage gap period, where the beneficiary is responsible for not only 100% of the prescription drug costs, but also the monthly premium. And this is also why before enrolling in a plan, beneficiaries will want to crunch some numbers to determine which plan is best suited for their particular situation.

The first thing beneficiaries will need to consider is the drug formularies that they will be using during the year. Before deciding on a Medicare Prescription Drug plan, beneficiaries will want to confirm that their drug formularies are covered by that AARP Medicare Advantage plan, and they will want to compare the co-pays that will be required for their particular drug formularies. The has a useful tool for comparing the various prescription drug plans.

Here is an example of three Medicare Prescription Drug plans selected for comparison with the Prescription Drug Plan Finder tool found on the Medicare website, using the following assumptions:

• Beneficiary is adding coverage to the Original Medicare fee-for-service plan;
• is not eligible for additional help for people with low income;
• is a resident of Ellicott City, MD using the 21042 zip code;
• and uses three commonly prescribed drug formularies: Diovan (High Blood Pressure Angiotensin Blockers), Mobic (Anti-inflammatory NSAIDs) and Lipitor (High Cholesterol Statins)

The search result listed a total of 48 plans available to Medicare beneficiaries in the Ellicott City area. The Prescription Drug Plan Finder tool on the Medicare website allows for comparison of three plans at a time, and the results for the plans selected for comparison are below.

(1) AARP MedicareRx Plan (Contract ID: S5820, Plan ID: 004)

• Monthly premium $28.61 and $0.00 deductible
• Annual Total Drug Plan Cost to Beneficiaries – $1,756

(2) WellCare Signature (Contract ID: S5967, Plan ID: 039)

• Monthly premium $19.80 and $0.00 deductible
• Annual Total Drug Plan Cost to Beneficiaries – $2,925

(3) Humana PDP Standard S5884-063 (Contract ID: S5884, Plan ID: 063)

• Monthly premium $6.44 and $250.00 deductible
• Annual Total Drug Plan Cost to Beneficiaries – $1,038

Only by comparing the prescription drug plans based on an individual’s specific drug formulary needs, can the consumers make an informed decision. As we can see from the above example, there are some significant differences on the annual total drug plan cost using our assumptions. As it turns out, the most important variable in determining the total annual drug plan costs to the beneficiaries are not the premium and deductible, but whether or not a particular drug formulary is covered under the plan. Another important variable is the amount of co-pay that the beneficiary has to pay for a particular drug formulary. The amount of co-pay that is required of the beneficiary will depend on which tier group a particular drug formulary is listed under by the prescription drug plan.

In our example, the AARP and the WellCare plans did not require an annual $250 deductible, but they varied in the level of coverage for our drug formularies. In the case of WellCare, the beneficiary would have had to pay 100% of the cost of the drugs (and also pay the monthly premium!) since this plan did not cover any of the three formularies, while the AARP plan covered the drugs but required a co-payment ranging from 40% for Lipitor to 66% for Mobic. The best plan in our example, the Humana Standard plan, had the lowest monthly premium and they also provided standard coverage for all three of our drugs, requiring just the 25% co-pay before reaching the initial coverage limit. All three of these plans had 6 local drug stores including CVS, Giant, RiteAid among others, conveniently located in the area that accepted their plans.

While the new Medicare Prescription Drug plan can be confusing, with a bit of research and some number crunching, consumers can make an informed decision. With the rising cost of healthcare and prescription drugs in general, the new Medicare Prescription Drug plan has the potential to be a positive new benefit for Medicare beneficiaries, and an important part of a personal financial plan. Keep in mind also that, you are not locked into a particular plan forever. After May 15, 2006 there will be an annual open enrollment period from November 15 through December 31 of each year when beneficiaries can change their plans.