Medicare: Beneficiary Cost-Sharing Under Prescription Drug Legislation

Publication Date: December 2003

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

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Abstract:

On December 8, 2003, the "Medicare Prescription Drug and Modernization Act of 2003" was signed into law (H.R. 1, P.L. 108-173). The law adds Part D to Medicare, which establishes a new voluntary prescription drug benefit that begins in 2006. This report analyzes how the cost-sharing and premium provisions under Part D would affect the amount that a beneficiary would pay annually for prescription drugs. In addition, this report gives examples of how annual cost-sharing would differ for beneficiaries with various levels of total prescription drug spending in 2006 under the plan's standard benefit.

Standard prescription drug coverage under the plan would pay 75% of drug costs after the enrollee paid the $250 deductible (in 2006). After $2,250 in total drug spending (the "coverage limit"), the enrollee would pay for all prescription drug spending until reaching the $3,600 out-of-pocket protection threshold. This threshold would be reached when total spending on prescription drugs exceeds $5,100, assuming none of the cost-sharing is paid for by group health insurance or other third-party arrangement. Medicare would then cover 95% of all additional drug expenses, as long as the beneficiary paid a minimum of $2 for each generic drug and preferred multiple-source drug, and a $5 copayment for all other drugs.

Thus, for most beneficiaries, Medicare would not contribute directly to the cost of drugs when annual drug expenses fall in a certain range, although Medicare would contribute directly toward beneficiary drug expenses at levels below and above this range. This aspect of the coverage is often referred to as the "doughnut hole." Under Medicare Part D standard coverage, the doughnut hole is between $2,250 and $5,100 in total prescription drug spending. L

ow-income beneficiaries would not face a doughnut hole in their coverage. "Dual eligibles," Medicare beneficiaries enrolled in their state's full Medicaid benefits, who are also institutionalized would pay no premium and have no costsharing whatsoever. Noninstitutionalized dual eligibles with countable income below 100% of poverty would pay no premium or deductible but would face a $1 copayment for each generic and preferred multiple-source drug, and a $3 copayment for all other covered drugs until reaching the $3,600 out-of-pocket protection threshold.

All other dual eligibles would face a $2 copayment for each generic and preferred multiple-source drug, and a $5 copayment for all other covered drugs until reaching the $3,600 out-of-pocket protection threshold. This is also the level of cost sharing for Medicare beneficiaries with countable income under 135% of poverty and countable assets in 2006 of no more than $6,000 for an individual and $9,000 for a married couple. Those who do not qualify in any of the previous low-income categories but have countable income below 150% of poverty and countable assets of no more than $10,000 for an individual or $20,000 for a married couple in 2006 would be eligible for a partially subsidized premium and cost-sharing lower than the standard benefit.