Medicare Part D: Important Information about the New Prescription Drug Benefit

Those eligible for Medicare will be able to participate in the new prescription drug benefit plan beginning January 1, 2006. Even if you do not currently consume a substantial amount of prescription drugs or you have retiree coverage that includes prescription drug benefits, you should sign up for Medicare Part D as soon as you are eligible in order to avoid higher premiums down the road.

Timeline

If you receive notice from you former employer that your retiree benefits are as good as the standard Medicare drug benefit (meaning you have “Creditable Coverage”) then you don’t need to sign up for Medicare drug benefits now. Still, many employers are dropping retiree coverage in order to cut costs; if you lose “creditable” retiree coverage at some point in the future you can then sign up for Medicare drug benefits without penalty.

What costs are involved?

Medicare’s “standard drug coverage” has a monthly premium (approximately $35), and pays 75% of drug costs after a $250 deductible up to $2,250 of total annual prescription drug costs. The coverage then pays 95% of costs after annual out-of-pocket spending reaches $3,600 to protect against very high drug costs. That gap, from $2,250 to $3,600 is often called the “doughnut hole.” This coverage will be subsidized by Medicare but will be provided under commercial insurance policies. Some of those plans may charge higher premiums to cover additional prescriptions, but no plan can have an annual deductible higher than $250 per year.

How do I choose a plan?

To begin, you first need to consider your current prescriptions. Drug formularies (i.e. lists of eligible drugs) differ by plan, and you need to find a plan that can cover as many of your costs as possible. The “Medicare & You 2006” handbook will list Medicare Prescription Drug plans available in your area. You can get free personalized information on-line at www.medicare.gov or by calling 1-800-MEDICARE (1-800-633-4227).

Alternatives: Medicare Advantage & Medigap Policies.

Medicare Advantage Plans combine Medicare (Part A and Part B) with private (HMO) coverage. Previously called Medicare + Choice, the plans are envisioned to reduce healthcare costs by encouraging seniors to shift to managed care. Medicare Advantage provides some drug benefits but the policies aren’t available in all states.

Much more common are Medigap policies; 10 million seniors have Medigap policies, also known as Medicare supplemental insurance, that cover deductibles and out-of-pocket costs not covered by Medicare. The plans offer benefits at levels designated by the letters A through J. Plans H, I, and J currently offer prescription drug coverage. Beginning in January 2006, companies will not be able to sell new Medigap policies with drug benefits; however enrollees who already have a policy with drug coverage will be able to keep them if they choose. If you keep your H, I, or J Medigap policy and later decide you want to sign up for Medicare drug benefits later, you will pay a penalty of 1% per month of your eligibility since January 1, 2006. A better option seems to be to shift to a Medigap policy, A through G, right away and also sign up for one of the stand-alone Medicare drug benefit plans.

The several options and their varying characteristics may seem overwhelming. Kochis Fitz is ready to assist you in evaluating your alternatives and helping you find the most cost-effective plan that provides the coverage you need among the long list of alternatives:

• New Medicare Part D subsidized, commercial insurance coverage
• “Creditable” employer’s retiree coverage
• Medicare Advantage Plans (HMO’s)
• Old Medigap Plans: H, I, or J

Sarah Bailey and
Linda Fitz

_