The New Medicare: What It Means for Consumers and Caregivers

December 1, 2003
Until now, older Americans and those who care for them haven't had to make many decisions about Medicare. The basic program was basically one-size-fits-all. Rich, poor, healthy and ill all shared benefits and premiums that varied little.

That all changes under Medicare makeover passed by Congress last week. The elderly and their caregivers must now become savvy, discerning consumers to find the combination of plans that's best for them.

First Decision: Drug Discount Card

The Medicare prescription drug benefit doesn't start until 2006 but beginning April 1, 2004, seniors will be able to buy Medicare-approved drug discount cards that the Bush Administration says could save them up to 25%.

The cards will be phased out in 2006 when the bigger program begins.

Here's what you need to know about the cards:

• Cost The cards will sell for up to $30 per year.
• One per customer Each beneficiary may have just one card.
• How to compare Make a list of all the drugs you take, then see the price each card offers for those drugs. All card providers and their prices will be listed at www.medicare.gov next year.
• Annual enrollment Once you sign up for a card, you will not be able to switch for one year. There will be exceptions, including long-distance moves.
• Actual savings No one knows what the actual savings will be but in a recent test in the Washington, D.C., area, savings ranged from 2% for Prilosec, a heartburn drug, to 44% for Furosemide, a blood-pressure drug.
• Who The cards will be issued by regional and national pharmacy chains, insurance companies and pharmacy benefit managers (PBMs).

The Drug Benefit

Beginning in November 2005, you will be able to sign up for the full-scale drug benefit program, which will be:

• Optional No one will be required to take the drug benefit.
• Private The government will not operate any of the drug benefit plans. All will be offered by private companies.
• Flexible You can stay in traditional fee-for-service Medicare and buy the drug benefit from a private insurer. But insurers will be offering the best deals to those who buy their Medicare and drug benefit coverage as a package.
• Confusing By now, everyone has heard of the "doughnut." For a monthly premium of $35, once a $250 deductible is met the benefit will cover 75% of drug costs up to $2,200. You then pay 100% of costs until you have spent $3,600 out of pocket for the year. Then the drug benefit will cover 95% of your prescription costs.
• Cheaper for some, not for others You'll have to decide whether you plan to get sick during the year. If you are healthy and spending less than $810 annually on prescriptions, you would lose money by joining the program.

To help you with the math, the Kaiser Family Foundation has a Medicare Drug Benefit Calculator on its Web site.

Competition

A key aspect of the legislation is to try once again to introduce competition into the Medicare market. Private insurers will be encouraged (i.e., subsidized with taxpayer dollars) to offer health-care plans competing with traditional fee-for-service Medicare. These may be cheaper and may offer significantly cheaper drug benefits to those who sign up for both Medicare and prescription coverage.

Seniors have traditionally resisted the preferred provider organization (PPO) and health maintenance organization (HMO) models but younger seniors are more likely to have had PPO and HMO coverage prior to retiring and may be more likely to opt for one of the plans in their area, especially if it saves them money.

If you choose a plan that costs less than traditional Medicare, you will get the difference rebated in your Social Security check.

Health Savings Accounts (HSAs)

Some seniors will be able to put pretax dollars into health savings accounts (HSAs) to cover expenses that Medicare doesn't cover. This may be an attractive option to those who have been self-employed and are accustomed to similar plans now available to small businesses. Only those who choose a deductible of $1,000 or more will be eligible.

Critics say this provision benefits only the healthy and wealthy. But supporters say it's wise to grant some options to those who can benefit from them, especially if it saves taxpayers a few dollars.

The Rich Get Soaked

Beginning in 2007, upper-income seniors will pay higher premiums for Part B, the portion of Medicare that covers doctor's bills and outpatient services. Everyone now pays the same -- 25% with a 75% government subsidy. Under the new legislation, those will incomes between $80,000 and $100,000 will pay 35% of the premium. The percentage climbs in steps, reaching 80% for those who make more than $200,000. The premium will be deducted from your Social Security check.

Think the high-income provision won't affect you? Don't be too sure. Remember, the income you begin drawing from your IRA and 401(k) will, in most cases, be taxable income.

Interestingly, this provision was generally championed by the better-off, even though it hits them in the pocketbook. It was vehemently opposed by advocates for the impoverished, who argued it would stigmatize Medicare as a program for the poor.

Prevention

For the first time ever, Medicare will be pay for some preventive health care. Beneficiaries entering the program in 2005 and beyond will get an initial physical meant to provide a baseline and detect any health-threatening conditions. In practice, this may mean that seniors get more encouragement to eat right, exercise more, stop smoking and drink less. Screenings for cardiovascular illness and diabetes will be included.

Medicare currently pays for treatment after symptoms appear but does not take any preventive measures.