Medicare Drug-Benefit Plan Is Mixed Bag for the Elderly

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Medicare Drug-Benefit Plan Is Mixed Bag

For the Elderly

By SARAH LUECK

THE WALL STREET JOURNAL, July 14, 2003

Americans eligible for Medicare are closer than ever to getting prescription-drug coverage. So why aren't more of them happy about it?

Some say they doubt lawmakers will produce a plan this year. Others are confused about how it would work. And many, like Earl Kirmser, an 86-year-old New York City resident, say the benefit, though welcome, is too skimpy.

[Earl Kirmser] Mr. Kirmser, who has no drug coverage, pays about $5,800 a year for medicine, mostly for heart problems. The Senate bill providing a Medicare drug benefit would save him about $1,700 a year; the House bill, $1,880 a year. But in either case, he would have to pay all his drug costs after a certain level. "I'm always in favor of saving money, but I wish it would be a better benefit," he says.

As the House and Senate meld their differing Medicare bills, many details are uncertain. In both, the full drug benefit won't be available until 2006. In the interim, Medicare recipients would be offered a discount card that would provide savings of 10% to 25% on medications and give them $100 to $800, depending on their incomes, to pay for drugs.

Many of Medicare's 40 million elderly and disabled beneficiaries would get significant new help paying for medicine -- nearly $400 billion over 10 years. That's a huge improvement for those with low incomes or very high drug costs. But people who don't spend much on drugs would have to decide whether the policies are worth the monthly cost. And some retirees whose former employers may drop drug coverage once Medicare offers it may end up with less coverage than they have today.

Darlene Vierow, a 70-year-old in Evans, Colo., doesn't expect her former employer, a bank, to cover her drugs forever and is anxious for a Medicare drug benefit. The bank's contribution to her private medical insurance, including drug coverage, is limited to $6,000 a lifetime; she expects to use that up in less than two years. Pills for her osteoporosis, migraines and cholesterol would cost her more than $500 a month without insurance. "They need to start helping out these older people," says Ms. Vierow, whose story was on the Web site of AARP, an advocacy group for older Americans.

To save money, Congress is contemplating policies that no insurance expert would ever design -- a coverage gap being one example. After meeting a deductible ($275 in the Senate version, $250 in the House), insurance would pay a portion (50% in the Senate and 80% in House) of a beneficiary's drug bills until the tab reaches a certain level ($4,500 in the Senate, $2,000 in the House). Then the insurance would pay nothing -- leaving a gap -- unless out-of-pocket drug spending, not counting payments by other insurance policies, reaches a preset threshold ($3,700 in the Senate and $3,500 in the House); after that, the Senate would pay 90% and the House 100%.

Both bills would protect many low-income people from high drug costs. Someone with an income less than about $12,000, for instance, would pay only $150 on an annual drug bill of $3,000 in the Senate bill. The House version requires the same beneficiary to pay $1,114. Those with yearly incomes below about $6,600 would also be eligible for Medicaid, the state-federal program for the poor, which provides much more generous drug coverage.

Medicare, under the House plan, would cover all drug costs after a beneficiary spends $3,500 in a year. But, in a break from Medicare's tradition of giving everyone the same benefits, individuals with income above $60,000, and couples with combined income above $120,000, would have to spend more than $3,500 before qualifying for that coverage.

Sally Frudden, a 70-year-old in Charles City, Iowa, says she is torn about that. Mrs. Frudden, a former professor at the University of Northern Iowa, and her husband, a 76-year-old former banker, have an annual income above $60,000 and would have to pay more of their own drug bills if they ever need to use the benefit. Currently, they get coverage from their former employers.

"We all put in the same [to the Medicare system]," Mrs. Frudden says. "Some of us have saved and invested and been prudent. Should we be treated differently at this time?" (In fact, the Medicare drug benefit will be financed not by Medicare payroll taxes, but by premiums paid by the elderly and by general tax revenues.)

Even people who currently spend little on drugs could benefit because the government is offering subsidized insurance to cover high medication costs in future years. However, those with small drug tabs often don't see that as a plus, instead focusing on their current spending.

The new drug benefit would be voluntary and cost about $35 a month, depending on what private insurers that would provide it decide to charge. Medicare recipients without alternative drug coverage who turn down the Medicare drug coverage initially and afterward change their minds would have to pay higher premiums; penalties will be set by the private insurers. The provision is meant to prevent a scenario in which only people with high drug costs take the coverage.

Another wrinkle is that the legislation indexes the thresholds in drug benefit to overall spending on drugs, not to overall inflation or increases in Social Security benefits. As a result, AARP estimates, the annual deductibles would nearly double by 2013 and beneficiaries would have to spend more over time to qualify for the government's most generous coverage.

With all the complexities, some people are having trouble determining whether the drug benefit would help them. Alice and Herb Montis of Des Moines, Iowa, say they can't figure out whether drugs would be discounted like the ones they get through an AARP program. And they don't know whether the benefit would be better than the drug coverage they now get through a supplemental Medicare plan.

A retired nurse, Ms. Montis says she worries about how people will navigate the changes. "To me, it's so confusing to older people to make decisions on what they ought to do," Mrs. Montis says. "They're going to be snowed and they're going to make mistakes. They're going to wish they didn't do what they did or that they did do what they didn't."