Tom Conlon

Case Western Reserve University

Public Health Management and Policy

Online Text Book Chapter

 

 

The Medicare Prescription Drug, Improvement and Modernization Act of 2003

 

 

 

Introduction

      As noted earlier in this online textbook, Medicare is the United States federally sponsored health-insurance program for citizens age 65 or older, some people under age 65 with disabilities and people with End Stage Renal Disease.

      On December 8, 2003 President George W. Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA).  The MMA makes the most significant changes in benefits, quality and system design in the 40 years of Medicare's history.  In signing the bill, President Bush stated that the "goal of MMA is to give the elderly more choices, better benefits and real savings."  The MMA also hopes to allow Medicare services to:

q       be delivered in a more timely manner

q       achieve better safety and effectiveness outcomes

q       improve the efficiency and reduce waste of services provided

q       increase the productivity of the massive national infrastructure and support systems that make Medicare work.

     

      There are major elements of MMA that relate only to hospitals, physicians and Medicare vendors.  Those changes are not addressed here. 

      This chapter instead focuses on how MMA most affects Medicare beneficiaries and other health care consumers.  The first section describes the most significant aspect of MMA—the Prescription Drug Benefit that will become available in 2006.  The second section covers MMA initiatives designed to make Medicare Advantage managed care plans more accessible and attractive to beneficiaries.  The third section looks at other key changes to Medicare benefits.  The fourth section reviews Health Savings Accounts, which were added to MMA to encourage non-Medicare beneficiary use of high-deductible health plans.  The chapter closes with some cautionary recommendations for Medicare beneficiaries in a “modernized” Medicare environment.

 

1.    The Prescription Drug Benefit Program

      From inception in the mid-1960s, Medicare has provided health insurance to elder and certain disabled Americans that covered hospitalization and physician services.   During this time millions of Medicare beneficiaries developed chronic illnesses such as heart disease, hypertension, diabetes and various mental disorders.  Numerous drug therapies were developed over the past 30 years to treat these and other chronic illnesses.1 However Medicare offered no insurance coverage for these drug treatments.  The MMA changed that by finally bringing prescription drug coverage to elderly Americans. 

      The prescription drug insurance coverage will be offered to Medicare beneficiaries by private insurance plans (in much the same way as auto insurance is offered to drivers by private companies like State Farm and Allstate). 

      Enrollment in the Medicare drug plan is optional.  Most beneficiaries will have two plan options to assess as they decide whether or not to enroll in a prescription drug program. 

      One option will be a stand-alone Prescription Drug Plan (PDP), which is likely to be the most popular choice among seniors.  With PDPs, beneficiaries will receive drug insurance coverage from private insurers in exchange for accepting a PDP contract and paying a monthly premium. 

      For many people, prescription drug coverage will also be available through a Medicare Advantage managed care plan.  Medicare Advantage plans are typically health maintenance organizations (HMOs) that coordinate all health care provided to beneficiaries.  Many of these Medicare Advantage plans will bundle prescription drug insurance coverage with the primary care, specialty care and hospitalization services that are provided by the managed care organization.  

      Drug coverage details for Medicare Advantage plans will not be presented in this section.  Few beneficiaries belong to Medicare Advantage plans.  And while each Medicare managed care plan offers unique insurance coverage, the drug plans offered through Medicare Advantage will be very similar to stand-alone PDPs.   So this section will focus on reviewing the insurance features of the stand-alone plans.

      The three most important questions Medicare beneficiaries should answer before joining a stand-alone PDP are:

q       Are the drugs that I take covered by the PDP?

 

q       Compared to the price that I would pay as an individual drug buyer, what are the prices the PDP charges for the drugs that I take?

q       Are the insurance benefits worth the out-of-pocket costs?

How to go about answering these questions is discussed below.

 

Are the drugs that I take covered by the Prescription Drug Plan?

      Each Prescription Drug Plan (PDP) will have a unique list, or formulary, of the drugs that will be covered by their insurance plan.  These competing formularies will be similar, as Medicare rules have established minimum standards for what types of drugs must be offered by all plans.  But the PDPs will not cover all drugs, nor will all formularies be the same.

      In assessing PDPs, the most important first step for Medicare beneficiaries is to compare the prescription drugs that they take to the list of drugs covered by PDPs.  Beneficiaries should only assess further those PDPs that cover all or most of the drugs they are taking. 

 

Is the Prescription Drug Plan offering better drug prices than I can obtain on my own?

      The principal reason why private companies will provide the drug benefit is that Congress and the Bush Administration believed that through competition, private insurers would negotiate comparable or lower prices with drug suppliers than the government could negotiate on its own.  Medicare expects that the price discounts and cost management techniques that drug plans implement will result in savings to beneficiaries of 15% in 2006, 17% in 2007, 19% in 2008, 21% in 2009 and 23% in 2010.2

      PDPs will make many claims about the drug price discounts they have obtained from pharmaceutical suppliers.  The amount of these discounts will typically be relative to drug manufacturers’ listed retail or average wholesale drug prices.   These prices are like the retail list price of a new car.  Often the “list” drug price is artificially high, as the expectation is that the price bargaining begins from this high point. 

      Many people buying prescription drugs are already receiving senior citizen, state pharmacy plan, Canadian pharmacy or other group discounts off the drug “list” price already.  So be careful.  The PDP-stated drug discounts may be of little value to people who are already receiving substantial drug discounts off the retail list price. 

      For example, The Wall Street Journal reported on February 15, 2005 that an individual buying certain prescriptions directly from Costco found better pricing than General Motors negotiated on behalf of its entire workforce.  The Journal reported that ninety pills of a common generic anti-ulcer medicine cost GM employees $181, while the same drug could be purchased for $22 at Costco's online service.  Also, a generic form of Prozac cost GM workers more than one dollar a pill but was only $.23 to an individual buying at a retail store.3

      The best way to assess PDP discount promises is to compare the prescription drug prices that you pay now to the prices for equivalent drugs offered by the PDPs.

 

Is the drug insurance benefit worth the cost?

      Here's how PDPs will work in 2006.  The basic monthly premium to join a plan will be about $37 and the annual deductible will be $250.  After the deductible is met, the PDP pays 75% of the beneficiary’s drug costs up to $2,250.  No insurance coverage is provided for expenditures between $2,250 and $5,100 (the “Doughnut Hole”-see below).  Ninety-five percent of a beneficiary’s drug costs above $5,100 are paid by the PDP.1

      Like the Medicare Part B plan that covers physician services, the premium for the standard Medicare drug benefit is heavily subsidized by the federal government.  The total annual premium for the drug plan is expected to be about $1,740 per beneficiary in 2006.  The federal government will pay 75%—or about $1,300—of this premium, while the Medicare beneficiary picks up the remaining 25% of premium cost—or about $440 ($37 per month).1

      Let's look at an example for a hypothetical enrollee to see how a PDP plan works.  Say the beneficiary expects to have $1,500 in prescription drug expenses in 2005—or about $125 a month.  Let's assume the same drug expenses for 2006—the first year of the prescription drug program—and that she has no access to any other drug discount program. 

      If this person joined a PDP on January 1, 2006, she would pay about $37 a month in insurance premiums.  The first $250 worth of drugs purchased in 2006 would apply to the deductible, meaning the beneficiary pays this entire amount.  Once the annual deductible is satisfied, the beneficiary would pay 25% of the $1,250 ($1,500 annual cost-$250 deductible) in additional drug costs incurred—or about $313.  Assuming she had not received any drug discounts before being in the PDP, the plan would save her $554—or about 37% of the out-of-pocket costs if the beneficiary had no prescription drug insurance.

      Table 1 below estimates the savings a beneficiary would achieve given various estimated annual drug costs.  This table may be useful in helping Medicare beneficiaries decide whether or not to join a PDP.  For example, if one expects to have less than $1,000 in prescription drug costs, there is little benefit—and it may even be more costly—to join a PDP.  For people who expect

 

Table 1.  Estimated beneficiary costs and savings for various annual drug costs.

Retail cost of drugs purchased by an individual not in a drug plan

Drug discount rate  negotiated by Drug Plan

Retail costs paid by an individual in a drug plan

Benficiary Share of Drug Costs

Annual Insurance Premium

Total Payment by Benefic-iary

Savings (Loss)

Savings %

$500

15%

$425

$294

$440

$734

($234)

No Savings

$750

15%

$638

$347

$440

$787

($37)

No Savings

$1,000

15%

$850

$400

$440

$840

$160

16%

$1,200

15%

$1,020

$443

$440

$883

$318

26%

$1,500

15%

$1,275

$506

$440

$946

$554

37%

$1,800

15%

$1,530

$570

$440

$1,010

$790

44%

$2,400

15%

$2,040

$698

$440

$1,138

$1,263

53%

$3,000

15%

$2,550

$1,050

$440

$1,490

$1,510

50%

$4,000

15%

$3,400

$1,900

$440

$2,340

$1,660

42%

$5,100

15%

$4,335

$2,835

$440

$3,275

$1,825

36%

$6,000

15%

$5,100

$3,600

$440

$4,040

$1,960

33%

$7,500

15%

$6,375

$3,664

$440

$4,104

$3,396

45%

$8,500

15%

$7,225

$3,706

$440

$4,146

$4,354

51%

$10,000

15%

$8,500

$3,770

$440

$4,210

$5,790

58%

$15,000

15%

$12,750

$3,983

$440

$4,423

$10,578

71%

$20,000

15%

$17,000

$4,195

$440

$4,635

$15,365

77%

Tom Conlon 2005 

 

more than $1,000 in drug costs in 2006, joining a PDP may make sense.  Given various annual drug costs and retail discount estimates, beneficiary savings range from 20% to more than 70%.  But remember, these savings assume the beneficiary has received no previous drug discounts. 

 

The "Doughnut Hole"

      The "Doughnut Hole" is the gap in coverage for the Medicare prescription drug plans.  As noted above, this means that no insurance coverage exists for out-of-pocket expenditures between $2,250 and $5,100.  For example, say a beneficiary has $3,250 in drug costs in 2006.  After paying the $250 deductible, the beneficiary will pay 25% of the cost of their prescription drugs up to $2,250.  The beneficiary would then pay 100% of the costs above the $2,250 threshold—in this case $1,000 ($3,250-$2,250).  The $1,000 represents the hole in the doughnut—the amount of drug costs not covered at all by the PDP. 

      The coverage gap was designed to help lower the federal cost of the prescription drug plan, which as currently designed is expected to cost $82 billion dollars in 2006—or approximately $2,196 per Medicare beneficiary.  The per beneficiary cost is projected to increase to $3,830 in 2014.  Total Medicare prescription drug cost from 2005-2014 is projected to be $1.1 trillion.  The federal government will cover about $850 billion of this total.4  

      Keep two things in mind about the “Doughnut Hole”.  One is that, even with the gap, if you have more than $1,000 in annual drug costs, the plans may be worth joining—even with the hole in the middle of the coverage (See Table 1).     Secondly, substantial cash outlays will still be required for those beneficiaries incurring between $2,250 and $5,100 (or about $190-$425 per month)—though overall this expense would be less than if the beneficiary had no drug insurance coverage or had no access to drug discount programs.

 

Substantial Support for People with Low Incomes and Limited Assets

      Of the estimated 43 million Medicare beneficiaries projected for 2006, approximately 14.4 million—about one third—are low income beneficiaries eligible to participate in the prescription drug benefits low income subsidy program.  Eligibility for the subsidy is determined by the income and assets a person or married couple has.  The low income support program offers substantial cost relief and nearly 11 million beneficiaries are expected to enroll in the subsidy program.5

      People who have incomes below 150% of the Federal Poverty Level ($14,355 for an individual and $19,245 for a couple in 2005) and who have limited assets (up to $10,000 for individuals, $20,000 if married) are eligible to receive subsidized drug benefits.  The assets qualifying for this determination are limited, including checking and savings accounts, stocks, bonds and other assets that can be quickly converted to cash.  A family home, personal car and other personal property do not count toward the asset determination.  The benefits include waving or substantially reducing the premiums, deductibles and co-payments, and a limitation of the “Doughnut Hole”.   For qualifying individuals the plans pay between 80% and 100% of all drug costs from the first prescription.5

      Here are some hypothetical examples Medicare has provided on how beneficiaries benefit from the low income program.5

 

 

Example 1

      Mrs. Smith is an 80 year old widow.  She has an annual income of $9,000 and no countable assets.  She is a Medicare and Medicaid (“dual eligible”) individual and her annual drug costs are $750.  In 2006, she will be eligible for the new Medicare prescription drug benefits low income subsidies.  She will pay no premium, no deductible and will have no gap in coverage.  She will pay either $1 dollar or $3 dollars for each prescription depending on whether she uses generic or non-preferred drugs.  Under the Medicare prescription drug program Mrs. Smith will pay only about $20 a year for her drug costs.

 

Example 2

      Mr. and Mrs. Jones are retired Medicare beneficiaries.  As a married couple they have annual income of $16,000 with countable assets valued at less than $9,000.  Mr. Jones has annual drug spending of $1,250 while Mrs. Jones spends $750.  Currently they have no drug coverage.  In 2006 the Joneses will be eligible for the new Medicare prescription drug benefit and subsidies. They will pay no premium, no deductible and will have no gap in coverage.  They will have co-payments of $2 or $5 dollars for each prescription.  Under the Medicare prescription drug program, Mr. Jones will pay about $57 a year for his drug costs and Mrs. Jones will pay about $34.  Both will achieve about 95% savings on their current drug spending.

 

 

Example 3

      Mr. Washington is a retired Medicare beneficiary. He has an annual income of $13,965 and annual drug spending of $1,750.  Currently he has no coverage.  In 2006 Mr. Washington will be eligible for the new Medicare prescription drug benefit.  Mr. Washington will pay a monthly premium of approximately $37, a $50 deductible, 15% co-insurance on each prescription up to the out-of-pocket threshold of $2,250.  He will have no gap (or Doughnut Hole) in coverage.  When his out-of-pocket spending reaches $808 (which corresponds to $5,100 in total spending in 2006), he will pay just $2 or $5 for each subsequent prescription.  Under the Medicare prescription drug program, Mr. Washington will pay about $275 a year for his drug costs, a 73% savings after the premium over his current drug spending.

 

Other Prescription Drug Plan Features

      The Medicare prescription drug plans have no annual or lifetime spending limits.  Each plan must offer enrolled beneficiaries nationwide coverage.  Drug discount cards were established for 2004 and 2005 as a temporary benefit prior to the full program launch in 2006; the card discount program ends on December 31, 2005. 

      Out-of-pocket costs will increase annually, with the amount tied to the increase in drug costs.  Since drug costs are projected to substantially outpace Social Security cost-of-living adjustments, the standard drug benefit plans as currently designed will become less and less attractive over time.  Especially for chronically ill people just above the income and asset levels that allow for low income subsidies.  See Table 2 for the Congressional Budget Office estimate of the projected out-of-pocket increases for 2006-2013.  The increases are mostly between 7-10% per year. 

Table 2.  Projected Change in Key Program Elements 2006-2013.

Year

Average Monthly Premium

Deductible

Main Benefit Limit

Catastrophic Limit

Coverage Gap  (“Donut Hole”)

2006

$35

$250

$2,250

$5,100

$2,850

2007

$37

$275

$2,470

$5,596

$3,126

2008

$41

$300

$2,710

$6,158

$3,448

2009

$43

$325

$2,920

$6,596

$3,676

2010

$47

$350

$3,170

$7,165

$3,995

2011

$49

$380

$3,400

$7,715

$4,315

2012

$54

$410

$3,690

$8,360

$4,670

2013

$58

$445

$4,000

$9,068

$5,068

 

 

Chart by The Congressional Budget Office

Note: When this chart was created in 2003, the 2006 premium estimate was $35.  Since that time, CMS has revised the projected 2006 premium estimate to about $37. 

 

      Anyone who is entitled to Medicare Part A (hospitalization) and is enrolled in Medicare Part B (physician services) is eligible for the drug benefit—which is labeled Part D.  The drug benefit programs begin coverage on January 1, 2006.  Enrollment is voluntary, which means people must “opt in” to a program by completing an enrollment form.  The initial enrollment period begins on November 15, 2005 and runs for six months ending May 15, 2006.  For people

enrolling by December 31, 2005, coverage begins on January 1, 2006.  For those enrolling from January 1-May 15, drug coverage starts on the first day of the month following an enrollment.  In later years open enrollment will run from November 15 to December 31.  Once a beneficiary chooses a drug plan they must generally remain in that program for the year.  However in the first six months of 2006 and in the first three months of 2007, enrollees will have options to move to a different program after January.6

 

Closing Thoughts on the PDPs

      The prescription drug plan program is primarily a catastrophic insurance plan for Medicare beneficiaries who do not qualify for the low income subsidy programs.   While most of these seniors will now have lower drug costs, the greatest benefit is for those who have very high drug costs—say about $600 a month or $7,200 a year.  If you incur these types of costs, this insurance plan can supply substantial savings. 

      And if you do qualify for the low income subsidy, the prescription drug plan offers significant benefits if no previous low income support was provided. 

     


 

 

2.  Medicare + Choice Expanded, Renamed Medicare Advantage

Medicare offers two health plan choices.  The Original Medicare Plan is a fee-for-service plan, which means a fee is charged for each health care service or supply a beneficiary receives.7  Eighty-eight percent of Medicare beneficiaries (over 36 million people) have their health bills paid by the original fee-for-service program.8

Approximately 11% Medicare beneficiaries are covered by managed-care plans.8  These offerings were formerly known as "Medicare + Choice Plans".  The MMA renamed the managed-care offerings "Medicare Advantage".

Enrollment in Medicare managed-care plans was 4.6 million in 2004, down from 6.3 million in 2000—a drop of 27%.  This drop is largely attributed to beneficiary dissatisfaction with increases in out-of-pocket costs and perceived reductions in benefits.  The decline was also driven by a steep reduction in available plans.  In 2004, 145 plans offered Medicare managed-care, down from 346 in 1998.  The vast majority of beneficiaries belong to Medicare health maintenance organization (HMO) plans.  More than 25% of Medicare managed-care enrollees live in California, where residents are well accustomed to health maintenance organizations.8

Medicare wants to make managed-care services more accessible and affordable to beneficiaries.   Medicare believes that people joining Medicare Advantage plans often receive more benefits than is offered in Original Medicare, such as access to preventative and wellness services, disease management programs and dental and vision care.  These plans may also offer less paperwork than Original Medicare.  Medicare also claims that Medicare Advantage members incur lower out-of-pocket costs, suggesting the average beneficiary saves $700 per year.  Beneficiaries in poor health achieve nearly $2,000 in annual savings.9  Over the long-run, many policy makers believe that Medicare Advantage plans will slow the rate of growth of Medicare expenditures, although that has not been the case so far with the Medicare+Choice plans.10

The MMA seeks to boost access and affordability by providing private insurers numerous financial incentives to offer new managed care plans to Medicare beneficiaries.  One change beneficiaries will see as a result of MMA is new regional preferred provider organization plans (PPOs) that will be available in 2006.  PPOs are networks of doctors and hospitals that contractually agree to provide health services at a specified rate, but which allow beneficiaries to go outside the network for health care if desired, albeit at a higher cost.  PPOs may benefit Medicare enrollees, especially those in rural areas, by providing access to more health care providers and services, by lowering out-of-pocket costs while also allowing options to see alternative providers.9 

MMA also offers insurers financial incentives to expand their HMOs so that beneficiaries have more access to these types of coordinated care plans.  Finally, MMA extends incentives to insurers to add the prescriptions drug program to their managed care offerings.   

All Medicare Advantage plans are different, meaning beneficiaries must carefully evaluate plan benefits rules and costs.  For example, beneficiaries should understand which doctors and hospitals will provide most of their care, how disease management programs function and how the prescription drug benefit plan is designed.  This process may be familiar to beneficiaries who made health insurance plan choices offered by an employer.  However beneficiaries not accustomed to understanding managed-care products may find the process daunting.  In either case, beneficiaries should seek help in making the important decision on which type of Medicare plan to join.

The "Medicare Personal Plan Finder" on the CMS Web site offers some help for beneficiaries to compare plan features and estimate out-of-pocket costs.  The "Medicare Personal Plan Finder" can be accessed at http://www.medicare.gov/MPPF/home.asp.  However this information may be less informative than tailored estimates provided by the private insurance plan.11 Family members, senior citizen service agencies and primary care providers are other sources that can help beneficiaries make the best Medicare plan choice.

 


3.  Other Key MMA Changes for Beneficiaries

The MMA added coverage for a number of preventative services, made changes to the Part B (physician services) deductible and premiums and modified Medigap rules.

An initial preventative medical examination is now offered within six months of when a beneficiary first becomes enrolled in Medicare Part B.  Screening blood tests for the early detection of cardiovascular disease are added, as are diabetes tests for those people most at risk for that disease.  The MMA also adds disease management programs to manage and promote health for those with chronic illnesses.12

The Part B deductible will increase from $100 to $110 for 2005 and then increase annually by the same percentage as the Part B premium increase.  MMA also introduces means testing for the Part B premium subsidy beginning in 2007.  Currently 75% of the Part B premium is paid by the federal government and 25% is paid by the Medicare beneficiary.  Beginning in 2007 and phased in over the five-year period, higher income people will have the Medicare Part B subsidy reduced as follows:

Income

Part B

Single

Married

Premium Paid By Medicare

Less than $80,000

Less than $160,000

75%

$80-$100,000

$160-$200,000

65%

$100-$150,000

$200-$300,000

50%

$150-$200,000

$300-$400,000

35%

Over $200,000

Over $400,000

20%

 

According to the Henry J. Kaiser Family Foundation, about 3% of Medicare beneficiaries will be subject to this means testing in 2007, growing to 6% of enrollees in 2013.8  (The Part B annual premium is $936 in 200513).  What's significant about this initiative is not the subsidy savings that Medicare will achieve.  Rather, this is the first time higher income beneficiaries will receive benefits that are means tested.  This theme will likely recur in future Medicare cost containment debates and legislation.

Medigap plans are insurance policies sold by private insurance companies to fill "gaps" in Original Medicare Plan coverage. Two new Medigap plans will be added in 2006 to help beneficiaries with out-of-pocket costs; these plans have not yet been defined.  Also, no new Medigap policies with drug coverage may be sold, issued or renewed to beneficiaries who have enrolled in a Part D prescription drug plan.  This restriction does not apply to policy renewals for beneficiaries who do not enroll in a Part D drug plan.

 

 

4.  Health Savings Accounts

Health Savings Accounts (HSAs) were literally tacked on to the end of the Medicare Modernization Act despite having little to do with the Medicare program.  HSAs are savings accounts designed to encourage the use of high-deductible health plans.  High-deductible health plans should first be understood before examining HSAs.

High-deductible health plans (HDHPs) are insurance plans that have a deductible of at least $1,000 for individuals and $2,000 for families.  Proponents of HDHPs believe such plans lower overall health care costs by making consumers more cost conscious of their health care choices and make health insurance more affordable for the uninsured.  Others believe there is little advantage gained by increasing incentives for purchasing HDHPs, as health premiums still remain too costly for most low income people and that altering incentives for health spending below the deductible level has little affect on overall health spending.  Opponents also believe that high-deductible health plans lead to underutilization of needed care.14

The MMA created Health Savings Accounts to encourage greater use of high-deductible health plans.  HSAs are savings accounts that have tax advantages but are only available to people who have enrolled in a HDHP.  Funds placed in HSAs are intended to cover out-of-pocket medical expenses.  HSAs have three tax advantages: (1) contributions to the accounts are tax-free; (2) buildup in the account is tax-free; and (3) distributions from the account are tax-free.  Distributions can be used for any un-reimbursed medical expenses, including retiree health insurance, Medicare expenses, prescription drug costs and many other health items.12 

HSA contributions can be made by individuals, their employers and family members—all on a tax-free basis.  Up to 100% of the health plan deductible may be saved annually, with a maximum of $2,600 for individual plans and $5,150 for family plans.  Individuals age 55-65 can make additional tax-free contributions of up to $1,000 per year.12

HSAs became available in 2004 and are related to health reimbursement arrangements (HRAs) and Medical Savings Accounts (MSAs) created in the mid-late 1990s.  HRAs and MSAs also provided tax incentives to encourage the use of high-deductible health plans, but these incentives were not highly successful.  Only about 8% of privately insured adults aged 19 to 64 (about 7 million people) had deductibles of $1,000 or more in 2002.14

Two factors suggest that HSAs and HDHPs will be favored more by higher income people than lower income people.  One, higher income people are more likely to have cash available to place in a tax advantage savings account than lower income people.  Two, higher income people have higher tax rates, making the tax savings incentive more meaningful to them compared to lower income people.  HSAs and HDHPs may also be more attractive to healthier people compared to chronically ill people.  Healthier people will incur lower out-of-pocket health expenditures than chronically ill people, making the accumulation and returns from the tax advantage HSA higher than if the account is depleted every year, as would likely occur for chronically ill people.

When you think about Health Savings Accounts, always think too about high-deductible health plans.  They are inextricably linked.  HSAs and HDHPs are likely to remain health coverage options that will be used by a small minority of American, unless employers make HDHPs the primary or only insurance plan offered to their employees.  Stay alert to this possible development, as HDHPs may offer employers substantial health-insurance savings, which is a goal of the majority of American businesses today.

 

 

Medicare Modernization—Some Cautions for Beneficiaries

The Medicare Modernization Act adds many important and potentially valuable options for Medicare beneficiaries.  The most important being the offer of prescription drug insurance coverage for over 40 million Americans. 

MMA substantially expands the use of private insurance plans in Medicare.  Private plans deliver the prescription drug programs and receive incentives to increase the number and type of Medicare Advantage managed-care services available.  Proponents of private plans believe that market-based competition will give beneficiaries more access and higher quality services, while lowering the overall costs to the Medicare program.  This may turn out to be true.  It will certainly be what's promised.

But Medicare beneficiaries must be cautious as they consider the prescription drug programs and evaluate Medicare Advantage plans.  The prescription drug plans and Medicare Advantage are similar to and build upon the private insurance model that Medicare+Choice plans were based upon.  The experience with private sector-led Medicare + Choice delivery has not led to improved access and quality and has in fact increased costs to Medicare.  And Medicare beneficiaries have been very dissatisfied with the private insurer health care delivery model.10

Beneficiaries and their supporters should stay alert to three key factors as they manage their Medicare benefits in the years to come.  One, private sector Medicare plans have a history of instability.  Beneficiaries have seen significant changes in premiums and benefits and many plans have entered and left the market quickly.10  Beneficiaries should carefully assess the stability of their private plans and closely watch plan changes that affect their out-of-pocket costs and benefits. 

Two, Medicare private insurance plans have historically enrolled healthier beneficiaries than those in Original Medicare.10  Chronically ill beneficiaries must be particularly careful when selecting drug or managed-care plans to ensure that the benefits offered satisfy their chronic health care needs.

The third factor is the most important.  All private prescription drug and managed-care plans will be different, which makes decision-making very complicated.  This will be especially true for urban beneficiaries where many plans will be available. 

This complicated system is of greatest concern to 50% of the Medicare population that does not have the consumer skills to compare basic information on health plans.15, 16 Studies have also shown that the elderly:

q       are vulnerable to making poor purchasing decisions when insurance options are confusing17

q       are reluctant to change insurers, even when it is in their economic benefit to do so.17  This is a special concern given the substantial out-of-pocket increases expected after 2006 (see Table 2)

q       find too many choices immobilizing18

q       with low education levels or poor English skills have particular difficulty in making insurance decisions19

 

Most beneficiaries will be confronted with complicated, risky decisions in this modernized Medicare world.  And many beneficiaries will not be able to navigate this decision-making maze. 

Medicare beneficiaries must receive ongoing help from family, friends, government agencies and other support sources to help them make the best informed choices for their health care needs. 

 


 

Works Cited

 

         1.    Center for Medicare & Medicaid Services, "New Medicare drug benefit to help pay for prescription drugs.  Issue Paper #1.," Available from http://www.cms.hhs.gov/medicarereform/issuepapers/title1and2/.

         2.    Center for Medicare & Medicaid Services, "Medicare drug benefit uses price negotiation to get best possible drug prices.  Issue Paper 10.," Available from http://www.cms.hhs.gov/medicarereform/issuepapers/title1and2/.

         3.     "Generic Drugs By Mail Can Be a Raw Deal," The Wall Street Journal, 15 February 2005.

         4.     "2005 Annual Report of The Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds," Available from http://www.cms.hhs.gov/publications/trusteesreport/default.asp?

         5.    Center for Medicare & Medicaid Services, "Additional help to those who need it most: those with high drug costs and those with low incomes.  Issue Paepr #3.," Available from http://www.cms.hhs.gov/medicarereform/issuepapers/title1and2/.

         6.    Center for Medicare & Medicaid Services, "Part D Benefit Eligibility and Enrollment.  Issue Paper #19.," Available from http://www.cms.hhs.gov/medicarereform/issuepapers/title1and2/.

         7.    Center for Medicare & Medicaid Services. Medicare & You 2003.  2003.
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         8.    Henry J Kaiser Family Foundation, "Medicare Advantage Fact Sheet," Available from http://www.kff.org/medicare/factsheets.cfm.

         9.    Center for Medicare & Medicaid Services, "Choices for Medicare Advantage. Issue Paper #2," Available from http://www.cms.hhs.gov/medicarereform/issuepapers/title1and2/.

       10.    B. Biles, G. Dallek, and L. H. Nicholas, "Medicare Advantage: Deja Vu All Over Again?," Health Aff.(Millwood.) (2004).

       11.    Medicare Payment Advisory Commission (MedPAC). Healthcare Spending and the Medicare Program.  2004.
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       12.    US House of Representatives Committee on Ways and Means, "Summary of Medicare Conference Agreement," Available from http://waysandmeans.house.gov/media/pdf/healthdocs/confagreement.pdf.

       13.    Center for Medicare & Medicaid Services, "Medicare Part B Premiums and the Adjusted Community Rate," Available from www.cms.hhs.gov/healthplans/letters/partbpremium.pdf.

       14.    Davis, K, Doty, M, and Ho, A. How High Is Too High?  Implications of High-Deductible Health Plans.  2005.  The Commonwealth Fund.
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       15.    J. H. Hibbard et al., "Can Medicare Beneficiaries Make Informed Choices?," Health Aff.(Millwood.) 17, no. 6 (1998): 181-193.

       16.    J. H. Hibbard et al., "Is the Informed-Choice Policy Approach Appropriate for Medicare Beneficiaries?," Health Aff.(Millwood.) 20, no. 3 (2001): 199-203.

       17.    US Government Accountability Office. Medigap Insurance:Better Consumer Protection Should Result from 1990 Changes to Baucus Amednment.  1991. Washington, GAO.
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       18.    B Schwartz, "A Nation of Second Guesses," New York Times, 22 January 2004.

       19.    The Commonwealth Fund. One-Third At Risk: Medicare Beneficiaries with Health Problems Need Cost Protections.  2001. New York.
Ref Type: Report