Medicare's Drug Plan:What to Do Now

As Key Sign-Up Dates for Benefit Approach,
Seniors Face Series of Decisions; Choosing a Policy

By SARAH LUECK
Staff Reporter of THE WALL STREET JOURNAL
September 14, 2005; Page D1

As the new Medicare prescription-drug benefit nears its launch, a host of private insurers are preparing to sign on, offering seniors a broad -- and some say bewildering -- array of policies to choose from.

The drug benefit, which takes effect Jan. 1, is designed to plug a glaring gap in the four-decade-old federal health program for the elderly: Medicare doesn't pay for most prescription drugs used by its more than 40 million beneficiaries. Now, seniors will be able to buy private policies, subsidized and regulated by Medicare, to help cover those costs.

When Congress passed the benefit two years ago, some predicted that few insurers would be interested in offering the coverage. In fact, the opposite is happening. While final contracts haven't been signed, the latest government information shows that seniors will be offered stand-alone drug policies from 11 to 23 different companies, depending on where they live.

Providers range from national health insurers such as United Healthcare, Humana and Aetna, to smaller regional providers. Many companies will offer several options that will vary considerably in their cost (some monthly premiums are expected to be as low as $20, with others well above $30), pharmacy networks and medicines they cover.

Insurers have been moved to participate by the opportunity to sell insurance to a new group of customers -- and perhaps eventually lure them to the lucrative Medicare Advantage plans, a managed-choice alternative to traditional Medicare. Companies are already laying plans for extensive marketing; starting Oct. 1, seniors will start seeing numerous pitches on TV, radio, in print and in their mailboxes. Enrollment for the benefit is set to start Nov. 15.

To help people choose a plan, the government will unveil a Web site in mid-October that will allow seniors to enter the drugs they take and the pharmacies they prefer. The site will then recommend the plans that match their needs.

Despite such tools, many health-policy experts are voicing concern that beneficiaries will be overwhelmed by the sheer number of choices, and other complexities. "The question is: Will seniors be so overwhelmed by all these choices that they throw up their hands and say, 'Forget about it'?" says Tricia Neuman, a Medicare expert at the Kaiser Family Foundation, a Washington nonprofit.

Selecting a plan requires seniors not just to evaluate the options in their area, but also to weigh them against other coverage they may have, such as retiree benefits or Medigap policies.

Here are some things to consider:

Sign up on time

Though the benefit is voluntary, anyone who delays signing on faces steep financial penalties -- in the form of higher premiums -- if they decide they want it later on. The initial enrollment period for the drug plans will run from Nov. 15 until next May 15. The penalties affect people who are eligible for Medicare because they are age 65 or above or have certain disabilities, and who don't already have drug coverage that has been determined by the government to be at least as good as the basic Medicare benefit.

For each month such a person is late signing up, he or she will automatically pay 1% more in monthly premiums forever. For example, people who are eligible for Medicare and lack good drug coverage would pay monthly premiums that are 24% higher if they join two years late.

The penalties, which are similar to penalties in Medicare's coverage of physician services, are designed to get everyone to sign up, not just the sick. They encourage people to start paying premiums even when they're relatively healthy instead of waiting until later when they become ill.

Weigh costs carefully

The bulk of the tab will be picked up by the government, but seniors will face significant costs in the form of monthly premiums, deductibles and co-payments. Those costs are likely to vary sharply depending on the plan, but insurers must follow some broad requirements set by the government. For example, annual deductibles -- the amount people must pay out of pocket before the plan starts to pay -- can't be higher than $250.

Insurers are offering few specifics ahead of the October marketing launch. But some premiums may be as low as $20 a month, according to preliminary information, while others will be well above $30; the nationwide average premium is estimated by Medicare at $32.20.

Some plans may be structured to charge no deductible, or to eliminate or lessen a coverage gap often referred to as "the doughnut hole," which Congress built into the plan to curb costs. The gap works like this: Once beneficiaries' total drug bill, not including premiums, reaches $2,250 in a year, they must foot their own costs until they spend a total of $3,600 out of pocket, not including premiums. After that, benefits kick in again, with policies required to pay at least 5% of drug costs for the rest of the year.

Beneficiaries and their families will be able to get help sorting out the benefits and costs on the government Web site, which will be accessible through www.medicare.gov. Those who don't use online services can call the 1-800-MEDICARE hotline. And various state and local agencies on aging and other groups will be holding informational seminars for in-person help.

Contact your former employer

Millions of beneficiaries will continue to get drug coverage in their retiree benefits. By Nov. 15, anyone with such coverage is supposed to get a letter from their former employer or benefits administrator informing them whether the benefit is "creditable," meaning the government has decided it's at least as good as the basic Medicare drug benefit. If that coverage is creditable -- and most corporate benefits are expected to be -- then retirees probably shouldn't sign up for the Medicare benefit.

Anyone who hasn't heard from their former company should contact it before making any change. Dropping an employer-sponsored plan could have serious consequences, such as losing access to other medical benefits.

Another note: Many employers are dropping retiree benefits as a cost-cutting move, and those who lose their corporate coverage may want to sign up for the Medicare drug benefit down the road. As long as that coverage was "creditable," they won't face penalties for signing up late.

Consider alternatives

Medicare Advantage plans, which are mostly offered by managed-care companies, provide seniors an opportunity to save on premiums and co-pays for medical care, including hospital and doctor fees, compared with traditional Medicare. The plans, previously provided under a program called Medicare + Choice, are part of the federal government's efforts to reduce costs by shifting seniors to managed care. Policies provide some drug benefits, but they aren't available everywhere.

Because of extra government subsidies that were part of the Medicare drug-benefit legislation, Advantage plans have started to offer more-generous drug coverage and in more parts of the country. The trade-off: These policies often have limited lists of in-network doctors and hospitals, and require participants to pay more to use out-of-network providers.

Revisit Medigap

Roughly 10 million seniors have so-called Medigap plans -- also known as Medicare supplemental policies -- to cover deductibles and other out-of-pocket costs that Medicare doesn't cover. The plans, which offer benefits at several government-set levels designated by letters from A to J, provide prescription-drug coverage in the H, I and J plans. But once the drug benefit starts, companies can't sell new Medigap policies that cover drugs.

Beneficiaries who already hold H, I and J plans can keep them if they choose. But the government doesn't subsidize Medigap policies, and the drug coverage isn't "creditable" compared with the new Medicare drug benefit. So people who keep them for a while and sign up for the Medicare drug benefit late would pay a penalty.

Seniors might be better off signing up for a stand-alone Medicare drug benefit or Medicare Advantage plan, or shifting to a Medigap policy without drug coverage.

In all, there are a lot of aspects to the Medicare drug benefit for seniors to consider. Bill Mayer, a 70-year-old in Monroe Township, N.J., who has a radio show focusing on senior issues, says discussions about Medicare always prompt a lot of calls. "I'm all for it," he says of the drug benefit. But he cautions that many beneficiaries may not view it as optimistically. "Seniors will have to read. Seniors will have to go on the Internet. Seniors will have to make choices," Mr. Mayer says. " 'We've had enough of schooling,' is what I hear. The biggest problem Medicare is going to face is that."

Write to Sarah Lueck at sarah.lueck@wsj.com