Monday, September 19, 2005 | The new Medicare Prescription Drug, Improvement, and Modernization Act of 2003 passed Dec. 8 of that year. But the main part covering prescription drug reimbursement starts in January 2006 (Medicare Part D). As a physician who has practiced since before Medicare was introduced by the Johnson administration, and after studying the program for the past several months, I have come to the conclusion that there is much to recommend it.
The law reads: “To amend the Social Security Act to provide for a voluntary program for prescription drug coverage under the Medicare Program, to modernize the Medicare Program, to amend the Internal Revenue Code of 1986 to allow deductions to individuals for amounts contributed to health savings security accounts and health savings accounts, to provide for the disposition of unused health benefits in cafeteria plans and flexible spending arrangements, and for other purposes.”
The government document I received for $30 contains 414 pages of 14-point print on Bible-thin paper and there are eight sections to it. Most of it is devoted to drug reimbursement (section 1-Medicare Part D). It is written in such bureaucratic language that the Center for Medicare and Medicaid Services (CMS) has separate personnel for each of the eight sections of the law. Fortunately, I was able to get in touch with some very helpful people at CMS and some excellent Web sites. Questions submitted by e-mail were answered in full. Also, a PhD academic pharmacist from San Diego State University was of help to me.
In analyzing this new Medicare drug policy for annual out-of-pocket expense on drug bills ranging from $1,000/year to $10,000, it was found to have better reimbursement and less out-of-pocket expense than either the American Association of Retired People, Blue Cross, or the American Medical Association. This was true even with the gap in reimbursement from $2,250 to $5,100.
The most important aspect of this new policy is its coverage of drug costs once a patient’s out-of-pocket expenses exceed $5,100. From here on in and with mounting drug bills, the additional cost is only 5 pecent. This is catastrophic drug coverage. The other private supplemental Medicare policies (Medigap policies) stop coverage when out-of-pocket expenses reach $3,000/year.
Finally, the cost of this new Medicare private prescription drug bill is only about $432 /year, AARP is $1,500,Blue Cross $2,868, and the AMA is $5,340. These charges by the insurance companies for just drug coverage are difficult to calculate because they are bundled in with other benefits and the insurance company actuaries have not figured as yet the cost of their policies without drug coverage in preparation for January 2006. The best one I could come up with was to take the plan without drug coverage (Plan F) and subtract it from the plan with the best coverage (Plan J). Fortunately, all the Medigap private insurance policies are the same (except for Massachusetts, Wisconsin and Minnesota), and it is only the price that varies.
These figures, plus the $250 deduction and the percent of the drug bill not reimbursed by insurance, are added to the above costs to calculate out-of-pocket expenses as shown in Figure 1. These data have been calculated for an 81-year-old male in good health.
Furthermore, this new Medicare drug policy (Plan D) is granted irrespective of previous medical conditions, whereas the AARP and Blue Cross candidates are screened. These data have been calculated for an 81-year-old male in good health.
AMA policy is granted only to physicians irrespective of their health problems, hence its higher cost.
What are the negatives? The most serious ones are the potentially restricted Drug Formularies of generic medicines (which have not been published yet), the inability to buy drugs from outside this plan during the gap and have it count towards filling the gap and thus qualify for the catastrophic coverage, and the ability of the pharmacies to charge retail prices during the gap period. Also, the effect on the pharmaceutical industry, particularly the retail, may be devastating.
Finally, although the law reads that enrollment in the new drug plan is voluntary, there is a penalty for enrolling after May 2006 of 1 percent per month (not compounded). Furthermore, new Medicare recipients at age 65 will not be able to purchase Medigap private policies with drug coverage.
According to the Congressional Budget Office, the cost of all this has been grossly underestimated by a factor of two. Also, premiums will be rising every year by an unknown amount – probably 5 percent to 7 percent. Overall, the cost of health care now accounts for 15 percent of the nation’s GDP (data 2003), the largest of any of the industrial nations. This bill will contribute significantly to the nation’s cost of health care.
In closing, what are my wife and I going to do after Jan. 1, 2006 ? We will probably modify our current Medigap policy to drop Plan J, which includes drug coverage and switch to Plan F. The plans are not identical but close enough to warrant the savings of $2,290 (for the two of us) plus another $2,000 from the new Medicare Drug Plan.
If one chooses the restrictions of managed health care, there are also the options of Medicare Advantage-Prescription Drug plan (MA-PD), Secure Horizons and others, which would save a patient in all probability $6,000 to $7,000/year, and the government many more thousands.
There is another alternative which I have not mentioned, and that is wait and see. Wait from January until May 2006 and see how the new plan works out but keep your current Medigap prescription drug policy (Plan J) active. These plans will not be reissued again after January 2006 if you drop it nor will they be issued to new Medicare patients after they reach age 65. However, if you keep your current Medigap Plan J active, this gives you the option of joining the new Medicare Drug Plan D even after May ’06 without a penalty. A patient cannot have the two policies running simultaneously.
The main beneficiaries of the new Medicare Drug Prescription plan are the poor and those with catastrophic drug expenses. This seems to be fair and reasonable.
Herman F. Froeb, MD, is a member of the Honorary Staff at Scripps Memorial Hospital. He is a former associate clinical professor of medicine at the University of California, San Diego.