Understanding Changes in Prescription Drug Coverage for People with Disabilities on Medicare

A project of Advancing Independence • November 2005

Jeffrey S. Crowley, Health Policy Institute, Georgetown University
with Bob Williams, Advancing Independence

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Paying for Medicare Drug Coverage

A key aspect of the Medicare Part D program is the amount of money that Medicare beneficiaries are charged to receive the drugs they need. There are three main elements of the cost: the premium, the deductible, and the cost-sharing. This is complicated because the cost of some of these elements can change within a year as a person’s annual drug spending increases; costs can also vary depending on where in the country one lives. Dual eligibles and other low-income Medicare beneficiaries are eligible for Extra Help which protects individuals from many of these costs.

What are premiums?

The premium is the monthly fee that individuals must pay to have Part D prescription drug coverage. Plans set their own premium and premiums vary with the level of coverage offered or with the level of cost-sharing—some plans have no premium, and others have very substantial premiums. In 2006, the national average Part D premium is $32.20 per month.

For an individual to retain prescription drug coverage, they must pay the premium each month. Individuals are given the choice of paying the premium by check or having it deducted from their Social Security payment. For persons receiving Extra Help, some or all of the premium is paid by the federal government.

What is the deductible?

The deductible is the amount that Medicare beneficiaries must spend on prescription drugs each year before Part D drug coverage starts to provide assistance. The deductible is established by the federal government and is adjusted each year based on the growth in Part D costs. In 2006, the standard Part D deductible is $250. A number of plans throughout the country are offering coverage with either a reduced deductible or no deductible. Additionally, most persons receiving Extra Help have no deductible even if they select a plan that charges other beneficiaries a deductible.

What is cost-sharing?

Cost-sharing is the amount that individuals must pay at the pharmacy counter to get their prescription drugs. In some cases, the cost-sharing could be a flat dollar amount per prescription, such as $5 per prescription, or it could be a percentage of the drug’s total cost.

What is the basic structure of the Part D benefit in 2006?

While the precise structure of the prescription drug benefit can vary from plan to plan, under the standard drug coverage plan, beneficiaries will be responsible for the following prescription drug costs in 2006:

Pay the monthly premium of the plan in which they enroll;

• Pay the first $250 in drug costs (deductible);
• Pay 25% of total drug costs between $250 and $2,250 (this is called the initial coverage period)
• Pay 100% of drug costs between $2,250 and $5,100 in total drug costs per year (this is called the coverage gap and has also been described in the media as the doughnut hole);
• Pay either $2 for generics and $5 for brand drugs or 5 percent of total drug spending (whichever is greatest) for all drug spending greater than $5,100 in drug spending per year (Once individuals have drug spending greater than $5,100 in 2006, this extra coverage is called catastrophic coverage).

Part D plans are also permitted to offer higher coverage options by charging a higher premium, as long as they offer a standard coverage plan. Part D plans are also permitted to offer plans with different levels of cost-sharing and either a smaller or larger coverage gap, as long as the total value of the coverage is equivalent to the level of coverage offered by a standard coverage plan described above. For example, a plan may charge a higher premium and charge cost-sharing of 30% for drugs, but eliminate or reduce the coverage gap. Additionally, plans are permitted to establish cost-sharing tiers, such that preferred drugs may have a low level of cost-sharing and non-preferred drugs would have a higher level of cost-sharing.

How can the cost of Part D drug coverage change from year to year?

As costs grow, the federal government will adjust every year both the deductible and the level of drug spending needed to reach catastrophic coverage. Plans will also adjust their premiums each year, and they may adjust other features of coverage, such as the level of cost-sharing for specific types of drugs, and which drugs are given preferred or non-preferred treatment.

What is meant by “True-Out-of-Pocket” or TrOOP?

True out-of-pocket spending (TrOOP) refers to spending by individuals and other sources that counts toward meeting the catastrophic level of coverage.

A philosophical principle underpinning the MMA is that all beneficiaries should be responsible for a share of the cost of the prescription drugs they receive. Dual eligibles residing in institutions are exempt from cost-sharing because, as a condition of eligibility for institutional care, they have already contributed all of their personal resources to the cost of their care. Dual eligibles and others residing in the community are required to pay some level of cost-sharing.
The cost of drugs covered by a Part D plan (including cost-sharing) count toward TrOOP as long as any applicable cost-sharing was paid by:

• The beneficiary
• Another individual (e.g. family or friends)
• Certain charities, including some pharmaceutical patient assistance programs
• A State Pharmacy Assistance Program (SPAP)
• A personal health savings vehicle (Flexible Spending Accounts, Health Savings Accounts, and Medical Savings Acco
• unts)
• Co-pays waived by a pharmacy
• CMS payment to Part D plans as low income subsidies

If an individual receives assistance with purchasing prescription drugs by a government entity that is not a state pharmacy assistance program, then the cost of the drugs provided do not count toward TrOOP. Additionally, if individuals purchase drugs on their own because their plan tells them the drug is not on the formulary, then this spending also does not count toward TrOOP.

What is Extra Help?

Extra Help is a component of the Medicare Part D program that provides financial assistance to dual eligibles and other low-income Medicare beneficiaries to assist with the costs of obtaining prescription drug coverage.

Who is eligible for Extra Help?

Extra Help is available to dual eligibles and individuals with income below 150% of the poverty level (monthly income of $1,196 for a single individual in 2005, with higher limits for larger households) and with limited assets. Due to rules for counting income where some income is not counted, some individuals may qualify for Extra Help even if they think they have too much income. Most people on SSDI will qualify for Extra Help, so they are especially urged to apply.

People with disabilities with income even close to income cut-off should be encouraged to apply for Extra Help.

How can someone apply for Extra Help?

Dual eligibles, SSI recipients, and Medicare Savings Program (QMBs, SLMBs, and QI-1s) are automatically eligible for Extra Help and do not need to do anything to get this assistance.

To apply for Extra Help, individuals should contact the Social Security Administration or the Medicaid office. While Social Security will be set up to handle the large volume of Extra Help applications, if individuals apply through their Medicaid office, they should also be screened for Medicaid eligibility and for the Medicare Savings Programs.

To help individuals find their local Social Security office, go online to the Social Security Locator (new window). Individuals can also call toll-free 1-800-772-1213. For people who are deaf or hard of hearing, the toll-free TTY line is 1-800-325-0778.

Since each state operates its own program, there is not a central number that everyone can call nationwide to get information about Medicaid in each state. Therefore, to get information individuals should call their state Medicaid agency. The number can be found by looking in the phone book in the State Government pages (often blue pages). Some states refer to Medicaid as “Medical Assistance”. In California, for example, Medicaid is called “Medi-Cal”.

How much assistance does Extra Help provide a dual eligible in an institution?

Dual eligibles in institutions are fairly well protected from Medicare Part D cost-sharing. This is essential as these individuals have already pledged all of their financial resources, except for a personal needs allowance, to the cost of their care. The following rules apply:

Premium: Dual eligibles in institutions receive a full premium subsidy up to the average cost premium in their region. Therefore, as long as they select a standard coverage plan (or equivalent basic coverage plan) with a premium below the regional average, they do not need to pay a monthly premium. If they select a plan with a premium above the regional average, they are responsible for the premium cost above the regional average. Also, if they select an enhanced coverage plan, they are responsible for the enhanced coverage portion of the premium even if the plan’s premium is below the regional average.

Deductible: Dual eligibles in institutions have no deductible.

Coverage Gap: There is no coverage gap for dual eligibles in institutions.

Cost-sharing: Dual eligibles in institutions have no cost-sharing.

How much assistance does Extra Help provide a dual eligible in the community?

With one important exception, the same basic rules outlined above apply to dual eligibles living in the community. The exception is that someone that is a dual eligible living in their community is subject to different cost shared requirements.

Premium: Dual eligibles in the community receive a full premium subsidy up to the average cost premium in their region. Therefore, as long as they select a standard coverage plan (or equivalent basic coverage plan) with a premium below the regional average, they do not need to pay a monthly premium. If they select a plan with a premium above the regional average, they are responsible for the premium cost above the regional average. Also, if they select an enhanced coverage plan, they are responsible for the enhanced coverage portion of the premium even if the plan’s premium is below the regional average.

Deductible: Dual eligibles in the community have no deductible.

Coverage Gap: There is no coverage gap for dual eligibles in the community.

Cost-sharing: Until they qualify for catastrophic coverage, dual eligibles in the community are subject to two different levels of cost-sharing, depending on their income. If their income is below the poverty level (including SSI recipients), then they pay $1 or $3 per prescription, depending on whether their plan has determined that the specific drug they have been prescribed is a “preferred” drug which would have the lowest cost-sharing or “non-preferred” which would have the higher level of cost-sharing. For dual eligibles in the community with income above the poverty level, their cost-sharing is $2 per preferred prescription and $5 per non-preferred prescription.

Catastrophic cost-sharing: Once an individual’s annual drug spending on Part D drugs reaches $5,100, they qualify for catastrophic coverage. Dual eligibles in the community have no cost-sharing once they reach the catastrophic level of coverage.

How much must assistance does Extra Help provide low-income people who are not dually eligible?

There are two levels of assistance for low-income Medicare beneficiaries who are not dually eligible.

Non-dual eligibles below 135% of poverty: Medicare beneficiaries who do not receive Medicaid with income below 135% of poverty ($1,076.63 of monthly income for a single individual or $1,443.38 for a couple) and limited assets (less than $6,000 for single individuals or less than $9,000 for couples) qualify for the same subsidy as dual eligibles above the poverty level.

Note: If an individual has income below 135% of poverty, but they are ineligible for this level of assistance because they have too many assets to qualify, they can qualify for the partial subsidy for individuals with income below 150% of poverty, as long as their assets are below the higher asset level for this group ($11,500 for single individuals or less than $23,000 for couples). For individual in this situation, see below for information on the level of Extra Help that is available for non-dual eligibles below 150% of poverty.

Premium: Non-dual eligibles below 135% of poverty level receive a full premium subsidy up to the average cost premium in their region. Therefore, as long as they select a standard coverage plan (or equivalent basic coverage plan) with a premium below the regional average, they do not need to pay a monthly premium. If they select a plan with a premium above the regional average, they are responsible for the premium cost above the regional average. Also, if they select an enhanced coverage plan, they are responsible for the enhanced coverage portion of the premium even if the plan’s premium is below the regional average.

Deductible: Non-dual eligibles below 135% of poverty have no deductible.

Coverage Gap: There is no coverage gap for non-dual eligibles below 135% of poverty.

Cost-sharing: Until they qualify for catastrophic coverage, non-dual eligibles below 135% of poverty pay $2 or $5 per prescription, depending on whether their plan has determined that the specific drug that are prescribed is a “preferred” drug which have the lowest cost-sharing or “non-preferred” which has the higher level of cost-sharing.

Catastrophic cost-sharing: Once an individual’s annual drug spending on Part D drugs reaches $5,100, they qualify for catastrophic coverage. Non-dual eligibles below 135% of poverty have no cost-sharing once they reach the catastrophic level of coverage.

Non-dual eligibles below 150% of poverty: Medicare beneficiaries who do not receive Medicaid who have income below 150% of poverty ($1,196.25 of monthly income for a single individual or $1,603.75 for a couple) and moderate assets (less than $11,500 for single individuals or less than $23,000 for couples) qualify for a “partial” subsidy.

Premium: Non-dual eligibles below 150% of poverty level receive a sliding scale premium subsidy. If their income is just above 135% of poverty, they will receive essentially a full premium subsidy, and if their income is at 150% of poverty, they will receive no premium subsidy. Also, if they select an enhanced coverage plan, they are responsible for the enhanced coverage portion of the premium even if the plan’s premium is below the regional average.

Deductible: Non-dual eligibles below 150% of poverty have a deductible of $50 per year in 2006.

Coverage Gap: There is no coverage gap for non-dual eligibles below 150% of poverty.

Cost-sharing: Until they qualify for catastrophic coverage, non-dual eligibles below 150% of poverty pay 15% of the cost of their drugs (based on the price their plan negotiates with the manufacturer).

Catastrophic cost-sharing: Once an individual’s annual drug spending on Part D drugs reaches $5,100, they qualify for catastrophic coverage. Non-dual eligibles below 150% of poverty pay $2 or $5 per prescription, depending on whether their plan has determined that the specific drug that are prescribed is a “preferred” drug which have the lowest cost-sharing or “non-preferred” which has the higher level of cost-sharing.

What level of Extra Help is available to a dual eligible if their income is above 150% of poverty?

Medicare beneficiaries who receive Medicaid qualify for the full Extra Help subsidy no matter how high their income. In some cases, Medicare beneficiaries qualify for Medicaid through Medicaid buy-in programs, Home- and Community-Based Waiver programs, or programs that use the 300% of SSI eligibility rule. All of these individuals qualify for the same subsidy as other dual eligibles with income above the poverty level.

What level of Extra Help is available to Medicare Savings Program participants?

Medicare Savings Program participants—i.e. people who receive Medicaid assistance with Medicare cost-sharing without receiving other Medicaid benefits—are not considered dual eligibles for purposes of determining the level of Extra Help they can receive. Medicare Saving Program participants (also called QMBs, SLMBs, and QIs) are automatically eligible for Extra Help, but they will be placed in the assistance level for non-dual eligibles with income below 135% of the poverty level. Please note that eligibility rules for Medicare Savings Program participants may vary from state to state and some states do not consider assets when determining eligibility for the Medicare Savings programs. This has no impact on assistance under the Extra Help program—all Medicare Savings program participants are eligible for Extra Help.

What is the Extra Help premium subsidy for Part D coverage in my state?

The federal government has divided the country up into Part D regions. Some regions consist of a single state, and other regions consist of many states. The average premium in each region determines the level of premium subsidy available to Extra Help recipients. For enhanced coverage plans, this subsidy only covers the standard coverage component of the premium. Extra Help recipients who select an enhanced coverage plan will be required to pay the enhanced coverage portion of the plan premium even if the enhanced plan’s premium is below the regional average.

What happens if individuals cannot afford to pay the cost-sharing when they try to pick up a prescription they need?

Unlike in Medicaid, where pharmacists are required by law to dispense prescription drugs even in individuals cannot afford to pay their cost-sharing, pharmacists are permitted to deny drugs to customers when they fail to pay their cost-sharing.

However, the law permits pharmacies to dispense drugs when the cost-sharing is not paid as long as they do not advertise that they will not charge cost-sharing, and as long as the decision is based on a pharmacist’s judgment that the individual is unable to pay the cost-sharing.

What assistance may be available to assist with cost-sharing expenses for persons who do not qualify for Extra Help?

Several options exist that may be able to assist Medicare beneficiaries with the cost of their Part D prescription drug coverage. While these will not be viable options for all people or in all circumstances, they provide a place to start in seeking additional assistance:

• State Pharmacy Assistance Programs (SPAPs)

State pharmacy assistance programs (SPAPs) are state programs, other than Medicaid, that provide financial assistance to Medicare beneficiaries in purchasing prescription drugs. In the absence of Medicare prescription drug coverage, these programs have served as a low-cost way for participants to obtain prescription drugs. At least some SPAPs are planning to fill gaps in coverage that arise, such as assisting participants in meeting their Part D cost-sharing obligations.

As of 2004, 29 states operated SPAPs, and nine more states had passed legislation as a precursor to implementing such a program. To date, the majority of SPAPs serve only persons age 65 and over, although some states also cover non-elderly people with disabilities. SPAPs receive special treatment under the MMA compared to other government programs, and this may spur more states to cover non-elderly people with disabilities. The special treatment provided by the MMA refers to the treatment of SPAP assistance when calculating the level of Medicare drug coverage and eligibility for catastrophic coverage. For example, if an individual participates in an SPAP and receives cost-sharing assistance, or if the program provides prescription drugs during the coverage gap, the value of this assistance will count toward TrOOP.

• Charitable Sources

Federal rules permit charities that are not connected to the Part D plan or the beneficiary’s employer to play a role in helping beneficiaries with their out-of-pocket costs. These rules view charitable organizations broadly so that even if an organization is not a bona fide charity for purposes of Federal fraud and abuse law, any drug payments it makes on behalf of Part D enrollees would count toward TrOOP.

• Pharmaceutical Patient Assistance Programs (PAPs)

Pharmaceutical manufacturers operate patient assistance programs (PAPs) that assist individuals with access to drugs on a compassionate use basis for individuals without insurance or another payment source. Each PAP has different eligibility requirements, but it is unclear whether current law will allow PAPs to supplement Medicare drug coverage. Even if it is permitted, it is currently unclear whether the value of any assistance provided by the PAPs would count toward TrOOP.

One resource for finding out more about these programs is the Partnership for Prescription Assistance. It describes its mission as offering individuals, their families and health professionals “a single point of access to more than 475 public and private patient assistance programs, including more than 150 programs offered by pharmaceutical companies. The Partnership can be reached toll-free, 1-888-4PPA-NOW (1-888-477-2669) or online at the PPAX website (new window).

• Family Members

Although many families will not have the financial resources to assist their family members with supplementing Medicare drug coverage, the law permits their contributions to count as though they were made by the individual. Therefore, any spending by family members (such as by buying drugs for the individual during the coverage gap or paying the co-payment at the pharmacy) would count toward TrOOP.

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Table of Contents

• Introduction
• Overview of the Medicare Part D Drug Coverage Program
• Paying for Medicare Drug Coverage
• Action Steps for People with Disabilities
• Action Steps for Disability Organizations
• Key Contacts and Other Resources

Documents

• Consumer Drug Information worksheet (PDF)
• Consumer Plan Selection Worksheet (PDF)
• Understanding Changes in Prescription Drug Coverage for People with Disabilities on Medicare (Full Guide, PDF)
• Understanding Changes in Prescription Drug Coverage for People with Disabilities on Medicare (Full Guide, Word Document, Minimal Formatting for Readers)

Note: PDF files require the most recent version (7 or higher) of the free Adobe Reader.

This consumer guide was developed with financial support from the Pharmaceutical Research and Manufacturers of America (PhRMA). Copyright © 2005 by Advancing Independence. Permission to duplicate is granted and encouraged. Please acknowledge the source. Please direct questions to robert.willliams@gmail.com.