LOW-INCOME MEDICARE BENEFICIARIES CAN EXPECT SUBSTANTIAL HELP FROM PRESCRIPTION DRUG LAW, BUT OTHERS WILL GET LESS ASSISTANCE
Nearly 7 Million People Projected To Reach “Doughnut Hole”
3 Million To Receive Catastrophic Benefits
Washington, D.C. – Low-income people with Medicare who sign up for new Part D drug plans and receive the additional subsidies – an estimated 8.7 million people – are projected to pay 83 percent less for prescription drugs in 2006 than they would have spent if the Medicare drug law had not been enacted, according to a new report released today by the Kaiser Family Foundation. Those who enroll in the new drug benefit but do not receive the low-income subsidies – an estimated 20.3 million people -- are projected to pay on average 28 percent less out of pocket for their prescription drugs as a result of the new law, the analysis finds.
The report, based on a model developed by Actuarial Research Corporation (ARC) for the Foundation, estimates out-of-pocket drug spending in 2006 among the 29 million people that the Congressional Budget Office (CBO) expects will sign up for Medicare drug plans.
“This analysis shows that the prescription drug law will provide the most help to seniors with low incomes and very high drug bills, just as Congress intended,” Foundation President Drew Altman, Ph.D., said. “Congress faced budget constraints and had to make tradeoff decisions; the question is whether the law they passed will meet seniors’ expectations.”
The simulation model generally conforms to CBO’s assumptions and projections about Medicare drug benefit spending and participation rates for the new benefit, known as Medicare Part D, and for the low-income subsidy. The projections of out-of-pocket drug spending are based on the likely response of Medicare beneficiaries to the new law. They do not reflect the effects of supplemental coverage that beneficiaries might obtain or take into account premiums paid by beneficiaries, which are estimated by CBO to average $420 for the new Medicare benefit in 2006.
Help for beneficiaries with low incomes
The Medicare drug law targets substantial resources to low-income beneficiaries. To qualify for the law’s low-income subsidies, people with Medicare must have annual incomes of less than 150 percent of the federal poverty level and limited assets, or must qualify for full Medicaid benefits. Those who receive the low-income subsidies are projected to pay 83 percent less on out-of-pocket drug costs in 2006.
However, Part D enrollees who meet the income requirements but do not receive the additional financial assistance, either because of their assets or because they do not sign up for the extra help, will pay substantially more than they would if they were to receive low-income subsidies.
For example, Medicare beneficiaries with incomes that fall below 100 percent of the federal poverty level (in 2004, $9,310 for an individual) who enroll in the benefit and receive low-income subsidies are projected to spend, on average, $90 out of pocket for drugs in 2006. The estimated 2 million people at that income level who do not receive the additional subsidy are projected to spend 10 times as much, or $943 on average.
“Low-income subsidies will clearly make an enormous difference for many seniors struggling to pay for their prescriptions, but unfortunately, many are expected to go without this extra assistance,” said Tricia Neuman, Sc.D., Foundation vice president and director of the Medicare Policy Project. “This demonstrates the need for an all-out effort to help low-income people on Medicare get the assistance promised by the new law.”
Almost 7 million in “doughnut hole”
The new analysis projects that 6.9 million people – or nearly one in four who sign up for the new drug benefit – could have spending in the “doughnut hole,” where those with total drug costs exceeding the initial benefit limit ($2,250 in 2006) are projected to have out-of-pocket costs exceeding $750 in 2006. Of the 6.9 million people who are expected to reach the doughnut hole in 2006, 2 million people (28 percent) have incomes less than 150 percent of the federal poverty level (in 2004, $13,965 for an individual); 2.8 million (42 percent) are in fair or poor health; and 3.8 million (55 percent) are women.
Help for those with catastrophic expenses
According to this analysis, the new drug benefit will substantially reduce projected average per capita out-of-pocket spending among Part D participants whose spending exceeds the $3,600 out-of-pocket catastrophic threshold. Nearly half (3.1 million people) of those who reach the doughnut hole are projected to receive catastrophic coverage under the new benefit because they incur at least $3,600 in out-of-pocket drug costs. Under the new law, this group is expected to pay $3,784 out-of-pocket, on average, in 2006, compared with a projected $5,980 on average in the absence of the new law – a reduction of 37 percent.
One in four projected to spend somewhat more
Overall, the analysis projects that three out of four who enroll in plans offering the new benefit (21.6 million people) are expected to have the same or lower out-of-pocket spending in 2006 than they would have without the new Medicare drug law.
The other one in four (7.4 million people) are expected to have higher out-of-pocket spending without taking into account the premium costs for the new coverage, unless they get supplemental coverage from another source. For most (about 5 million people), the increases are expected to be modest – $250 or less. This group includes many people with limited incomes who currently pay little or nothing for prescription drugs under their state Medicaid program, as well as people with low drug spending who currently have coverage for prescription drugs with a low or no deductible (such as through a Medicare Advantage plan). Under the standard Medicare drug benefit they will have to pay a $250 deductible before coverage begins, thus raising out-of-pocket costs above previous levels.
The 2.4 million people who are projected to face even higher out-of-pocket costs under the new drug benefit in 2006 includes those with relatively high out-of-pocket drug costs who are projected to lose access to more generous prescription drug coverage than the new Medicare benefit provides, especially people who lose their employer plan coverage.
“Most are projected to get helped, and some will get helped more than others, but in any single year we would expect one in four to spend more out of pocket under Part D than they would have under the prior system,” said Jim Mays, the report’s lead author and ARC vice president.
The report, other materials and webcast from today’s briefing in Washington are available online at http://www.kff.org/medicare/med112204pkg.cfm. The webcast will be available after 5 p.m. EST.
Methodology The analysis is based on a simulation model developed by Actuarial Research Corporation (ARC). The model projects how Medicare beneficiaries will fare under the new law, based on a number of behavioral assumptions, such as whether beneficiaries sign up for new Part D plans or apply for low-income subsidies, and other assumptions, such as the effects of drug coverage under Medicare on prescription drug utilization. The ARC model generally conforms to Congressional Budget Office (CBO) assumptions and projections about Medicare drug spending, Part D participation, and number of low-income subsidy recipients. The model controls to the CBO projections, rather than to those prepared by the Office of the Actuary at the Department of Health and Human Services, to be consistent with spending estimates that were used by the Congress. The model developed by ARC incorporates information about beneficiary characteristics, including demographics and insurance coverage, to allow for analysis of projected variations in average spending by characteristic, as well as distributions of total and out-of-pocket spending. The analysis focuses on beneficiaries who are expected to enroll in Part D in 2006 (29 million, according to the CBO). The model assumes that all Part D participants enroll in a plan that provides the standard benefit, or its actuarial equivalent, and do not receive any form of supplemental coverage. The model does not take into account out-of-pocket costs for drugs that are not covered by Part D plans, such as those that are not on a plan’s formulary. Out-of-pocket spending estimates presented in this report exclude premiums paid by beneficiaries, both for existing baseline coverage as well as annual premiums that they would pay for coverage under Part D plans (estimated by the CBO to average $420 for 2006). The only beneficiaries for whom we consider the effects of estimated Part D premiums are those beneficiaries who are assumed to lack drug coverage in the absence of the MMA, and therefore face no existing premiums, but who are expected to enroll in Part D plans in 2006. |
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The Kaiser Family Foundation is a non-profit, private operating foundation dedicated to providing information and analysis on health care issues to policymakers, the media, the health care community, and the general public. The Foundation is not associated with Kaiser Permanente or Kaiser Industries.
