Final Rules Implementing the New Medicare Law: A New Prescription Drug Benefit for All Medicare Beneficiaries, Improvements to Medicare Health Plans and Establishing Options for Retirees
FACTS ABOUT TODAY?S ACTION
The U.S. Department of Health and Human Services? Centers for Medicare & Medicaid Services (CMS) today issued the final regulations implementing a new prescription drug benefit that will help people with Medicare pay for the drugs they need. This benefit begins in January 2006 and allows all Medicare beneficiaries to sign up for drug coverage through a prescription drug plan or Medicare health plan. The final regulations also provide new protections for retirees who currently receive drug coverage through their employers or unions, and they strengthen the Medicare Advantage program.
To develop the final regulations implementing the Medicare prescription drug benefit, CMS relied on the expertise, input and recommendations from individuals and organizations such as consumer and beneficiary advocates, health plans, pharmacies, pharmaceutical benefit managers, actuaries, states, health care providers, employers, unions, and other affected groups and experts. In addition, thousands of written comments and an extensive series of public meetings, including Open Door Forums, provided CMS with helpful advice and information in response to the proposed regulations that were published in August 2004.
BACKGROUND
For Medicare beneficiaries, two key provisions of the Medicare Modernization Act (MMA) are the new prescription drug benefit and the enhanced health plan choices in Medicare Advantage. As a result of these new benefits, beneficiaries can get prescription drug coverage and new support for their existing drug coverage through health and prescription drug plans that contract with Medicare. They can also access preferred provider organizations (PPOs), the most popular health plan choices for those under age 65 today.
Since Medicare was created in 1965, it has focused on coverage for acute health care services that are useful after people develop medical complications. Yet one-quarter of seniors and people with a disability now in Medicare have no drug coverage, even though prescription drugs are an integral part of modern medicine to prevent diseases and their complications. Millions more face limits and rising costs in the coverage they receive through Medigap, Medicare Advantage, or state Medicaid plans and pharmaceutical assistance plans. Beneficiaries with retiree coverage are worried about its security, due to the decline in retiree benefits that has occurred over the past decade. With the enactment of the MMA, and the final rules issued today, Medicare looks more like the rest of the American health care delivery system by giving beneficiaries the option of new, subsidized drug coverage, as well as new support to keep their current retiree coverage secure.
In addition to the standard drug benefit with protection against high out-of-pocket costs, available to all beneficiaries with a 75 percent premium subsidy from Medicare, the MMA and the final regulations provide many approaches for beneficiaries to get even more comprehensive coverage for their prescription drug needs. Low-income seniors and people with a disability who have limited means ? about a third of all people with Medicare ? will have access to comprehensive coverage, with no or limited premiums and deductibles and low or nominal costsharing. Medicare beneficiaries with retiree coverage will benefit from a set of options to continue to get prescription drug coverage, including a new retiree drug subsidy as well as options for employers and unions to wrap around Medicare coverage or offer Medicaresubsidized drug coverage themselves.
The substantial additional resources that Medicare provides through the retiree drug subsidy and the various opportunities employers and unions have for providing additional coverage complementing the standard drug benefit will make it easier for employers and unions to provide high quality retiree drug coverage to Medicare-eligible retirees. In addition, states, other individuals, and charitable organizations will be able to contribute towards a beneficiary?s outof-pocket costs and still have those contributions count towards the out-of-pocket spending threshold that triggers the beneficiary?s catastrophic drug coverage protection. Beneficiaries who have been paying the full cost for their own drug coverage, either through ?access-only? retiree plans (plans where the retiree finances 100 percent of the cost of the premium) or through Medigap policies, will now gain access to a generously subsidized drug benefit that will make coverage more affordable, and will have the option of supplementing the standard Medicare drug benefit.
The new Medicare law and the proposed rules also allow states the flexibility to enhance, or ?wrap around,? the comprehensive coverage for certain low-income beneficiaries. States will also save money because Medicare will provide comprehensive coverage for ?dual-eligible? beneficiaries (those who qualify for Medicaid and Medicare) and provide new subsidies for state retiree coverage.
Beneficiaries also have access to a variety of modern integrated health insurance plans, including preferred provider organizations (PPOs), all with Medicare-subsidized drug coverage. PPOs are the most popular health plans for younger Americans who are covered by commercial health insurance plans, but until now have generally been unavailable to people with Medicare, particularly those in rural areas.
Enhanced Drug Coverage with Savings for Beneficiaries, States, and Employers
The Medicare prescription drug benefit: The final rules describe the plan options that beneficiaries will have to obtain their outpatient drug coverage. Prescription drug plans and Medicare Advantage plans will be required to provide basic coverage, but may also offer
additional plans with supplemental coverage. These ?high option? plans with enhanced coverage (for example, with lower cost-sharing) allow beneficiaries to add to the Medicare-subsidized standard coverage using some of the contributions that they, their health plans, employers, unions, and others already make today. Charitable organizations, other individuals, and states will also be able to contribute to beneficiary out-of-pocket costs while still having their contributions count as ?true out-of-pocket? spending for purposes of the Medicare subsidy for high drug expenses. A beneficiary?s health care spending account, such as a flexible spending account or a health savings account, can also contribute while counting as ?true out-of-pocket? spending.
Medicare prescription drug plans will also be required to have cost management programs that lower prescription drug costs for beneficiaries including the use of medication therapy management programs and a coordination of benefits system that will enable multiple payors to be recognized for individual drug claims.
Comprehensive assistance for low-income beneficiaries: CMS estimates that nearly 11 million beneficiaries with limited means will receive substantial additional help from Medicare. In addition to the 75 percent subsidy for the standard Part D benefit provided to all Part D enrollees, low-income beneficiaries will receive additional premium and cost-sharing subsidies averaging almost $2300 per person in 2006.
? About 6.3 million low-income beneficiaries who are full-benefit dually eligible for both Medicare and Medicaid will have no premium or deductible and co-pays of as little as $1 or $3 per prescription. For these beneficiaries, the Medicare benefit will pay, on average,
98 percent of their drug costs.
? About 3 million Medicare beneficiaries who are not full benefit dual-eligible beneficiaries, but whose incomes are less than 135 percent of the federal poverty level (in 2004, $12,569 for an individual and $16,862 for a couple) and with limited assets, will also pay only a few dollars per prescription. Medicare will cover 96 percent of their drug costs on average.
? About 3 million Medicare beneficiaries who are not full benefit dual-eligible beneficiaries, but whose incomes are less than 135 percent of the federal poverty level (in 2004, $12,569 for an individual and $16,862 for a couple) and with limited assets, will also pay only a few dollars per prescription. Medicare will cover 96 percent of their drug costs on average.
? For about 1.6 million beneficiaries with incomes less than 150 percent of the federal poverty level and assets up to $10,000 (or $20,000 if married) in 2006, the Medicare benefit will provide 15 percent co-pays with a sliding-scale premium, covering on average 85 percent of their drug costs.
? The new comprehensive drug benefit is also expected to attract more than 1 million beneficiaries with limited means who have been eligible but have not previously enrolled in Medicaid benefits (including Qualified Medicare Beneficiary and Specified Lowincome Medicare Beneficiary benefits ? QMB and SLMB) because of the high value of the drug benefit and Medicare?s unprecedented outreach activities.
? The new comprehensive drug benefit is also expected to attract more than 1 million beneficiaries with limited means who have been eligible but have not previously enrolled in Medicaid benefits (including Qualified Medicare Beneficiary and Specified Lowincome Medicare Beneficiary benefits ? QMB and SLMB) because of the high value of the drug benefit and Medicare?s unprecedented outreach activities.
The final rules ensure that the most vulnerable of low-income beneficiaries, many of whom are nursing home residents, who do not sign up for a drug plan by the middle of December will be auto-enrolled by Medicare to further ensure there is no gap in coverage. Beneficiaries who are identified as full benefit dual-eligibles will be notified of their entitlement to drug coverage and will be auto-assigned to a drug plan in their area. The final rules also describe the process for protecting low-income beneficiaries transitioning their drug coverage from their state to Medicare by detailing a three-part strategy that includes formulary review criteria for certain diseases, medical necessity coverage of non-formulary drugs, and plan-specific transition procedures to further ensure that dual-eligible beneficiaries will get the drugs they need. CMS may also facilitate the enrollment of individuals who are determined eligible for the low-income subsidy.
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