Ladies and Gentleman, Start your Engines
September 2005
Labor Day is Monday and we think it will signal the start of a blitz to get you to sign up for Medicare Part D. Enrollment begins on November 15th with coverage beginning on January 1. Medicare Part D will cover prescriptions and will be in addition to Medicare Part A, which covers hospital care and is funded by payroll taxes and Medicare B, which covers doctor visits and is funded partially by premiums withheld from your social security check. You may think Medicare D doesn't apply to you, but you may end up assisting an elderly relative in making their decision.
Medicare D is unique from Medicare A and B because the plan will be offered by an unknown number of private companies, employer sponsored plans, revised Medigap programs and state pharmaceutical assistance programs. So, you can imagine how many solicitations you are likely to receive. Plans can be different in terms of benefits and drugs offered but each plan must meet federally assigned tests to insure they are equivalent. Once you choose a plan, you are locked in for one year.
The latest information suggests that the monthly cost could be as low as $20. The decision is however far more complicated than, "can I afford $20 a month". The standard plan will have an annual deductible of $250. The standard plan will then cover 75% of the next $2,000 in costs. You will then be responsible for all costs from $2,250 to $5,100. This range is being referred to as the "donut". Above $5,100 in drug costs, the plan will pay 95% of costs for the rest of the year. So if your drugs costs are less than $5,100 a year, you will pay approximately $240 and receive a maximum benefit of $1,500. This may appear like an ok deal but you will be responsible for any drugs not covered by your plan called a formulary. If you expect costs to exceed $5,100, it seems clearer that you should elect Medicare D coverage.
Assuming you know what drugs you will need in the coming year, how do you cost out your drugs? This is complicated because prices vary widely from store to store and from customer to customer. To you, your drug cost may be your $10/$20/$30 co-pay. You may need to discuss what your drugs cost with your pharmacist. You should note that on average the typical older American take three medications and the rate of inflation on drugs is currently three times the rate of general inflation.
You may think that you do not need drug coverage right now. BEWARE: After the initial enrollment period (November 15, 2005 to May 15, 2006), if you do not select a Medicare D policy or equivalent MEDIGAP policy with drug coverage, your premium will go up 1% each month you are without coverage and that higher premium will last as long as you are with a Medicare program.
The federal government will be subsidizing approximately 25% of the cost of the private company plans. Premiums from participants are expected to cover 25% of the costs of the plan. Medicare will also provide premium assistance to low income beneficiaries, which are applied for at your local Social Security Office. If this sounds like math that doesn't add up, it doesn’t. The federal cost of the plan is estimated to be $724 billion though 2015.
If you want to know where the funding is coming from, the Medicare Prescription Drug Improvement and Modernization Act made a quiet and not highly published change to Part B coverage. The premiums for Part B coverage, similarly to the New Part D premiums, currently cover about 25% of total costs of the program. Beginning on January 1, 2007, premiums will be tied to income levels. For instance, individuals with AGI above $150,000 your premiums will be set at a level intended to cover between 65% and 85% of the program. In all likelihood, your premiums for Medicare B will triple one year from this coming January.
This lunch byte was written by Diane Burke. Call (302-656-6632) or email her at Dburke@coverrossiter.com for help in making your decision.