Analysis: Medicare law has cost drawbacks

By ELLEN BECK, United Press International  |  Dec. 8, 2003 at 3:08 PM
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WASHINGTON, Dec. 8 (UPI) -- President Bush scored a political victory Monday when he signed the Medicare prescription drug bill, but the new law has strings attached and rising out-of-pocket costs for seniors.

"With the Medicare Act of 2003 our government is finally bringing prescription drug coverage to the seniors of America," he said during a signing ceremony at DAR Constitution Hall that included a band and exhortations of Bush as the Republican president who pushed through an issue that had been a centerpiece for the Democratic Party.

The bill really gives the most help, Bush admitted, to very low-income Medicare beneficiaries and those who have very high drug expenses each year.

"Seniors in the greatest need will have the greatest help under the modernized Medicare system," he said.

That came about because Bush set the spending limit at $400 billion early on, leaving little wiggle room for legislation crafters.

"Many of the policy decisions that went into the final product clearly were driven by the fact that resources were limited," Julie James, an analyst with Health Policy Alternatives, told reporters at a briefing on the bill sponsored by the Alliance for Health Reform, a bipartisan healthcare policy center.

The idea was not only to protect and help the very poor -- those who qualify for Medicaid -- and those with high drug costs, but also to allow some up-front money for other beneficiaries to draw them into the program. Those other beneficiaries, however, stand to pay considerably more for prescriptions as the years progress.

The new law -- its full name is the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 -- will begin by issuing discount drug cards in April 2004. For about $30 per year, beneficiaries can purchase the cards, which will provide discounts up to 25 percent on their retail drug costs. MPDIMA also will give low-income seniors additional help paying for the cards and $600 in direct assistance.

The real drug benefit program begins in 2006. Seniors then will start with an annual deductible of $250 and a monthly premium of $35. The government will pay 75 percent of drug expenditures, up to a cap of $2,250. Then the so-called coverage gap -- during which beneficiaries pay 100 percent of all drug costs -- kicks in, until out-of-pocket spending hits $3,600 and total expenditures are at $5,100. After that beneficiaries will pay a 5 percent share with no maximum for the year.

Some of these figures will rise over time. The Congressional Budget Office estimated that in 2013 the deductible rises to $445 and monthly premiums go to $58. Though the 75 percent government share remains, the cap increases to $4,000. The result will be out-of-pocket costs jumping to $6,400 in 2013 and total costs rising to $9,066 before catastrophic coverage begins.

The extra help for low-income beneficiaries also has a significant string attached -- an asset test -- along with income requirements for qualification.

"There are going to be a large number of people who are not going to be eligible for low income protections unless you think $10,000 in assets is rolling in the dough," said Marilyn Moon, vice president and director of health for the American Institutes for Research in Washington.

Very low-income seniors and the disabled who qualify for Medicaid -- which also limits assets -- would pay only a minimal $1 or $2 per prescription. There are some 6 million so-called dual-eligibles out of almost 42 million beneficiaries.

Those who do not qualify for Medicaid but who have incomes below 135 percent of the poverty level -- $12,123 per individual -- only get a full premium and deductible subsidy, as well as additional government cost sharing, if they have assets less than $6,000 -- not including a house or car. Those at 150 percent of poverty -- $13,470 -- which represents about one-third of beneficiaries, would get additional partial subsidies only if their assets are less than $10,000.

An analysis provided by Moon indicates 33 percent of beneficiaries with incomes up to 135 percent of poverty and 47 percent of those at 150 percent have asset totals that would preclude them from help.

The new law, however, assist millions of seniors in paying for drug costs if they have no other coverage option. The average senior will incur an estimated $3,160 in total drug expenses in 2006 and, according to a Medicare drug calculator provided by Kaiser Family Foundation on its Web site,, under the new law would pay $2,080 out of pocket, with the government paying $1,080.

The new law is expected to play well on the 2004 campaign trail. Ralph Reed, a Bush campaign adviser, told CNN the law will save the average senior 60 percent on drug costs once the law is fully implemented in 2006.

"It took a Republican president and a Republican Congress to deliver," Reed said. "He made a promise to the seniors of America -- and he kept it."

Robert M. Hayes, president of the Medicare Rights Center in New York City, said the bill signing was not an end to the fight for affordable prescription drugs for seniors.

"This legislation will leave millions of older Americans choosing between food and medicine," Hayes said.


Ellen Beck covers healthcare policy for UPI Science News. E-mail

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