Implications of the Medicare Prescription Drug Benefit for State Budgets
Publication Date: June 2004
Publisher: Library of Congress. Congressional Research Service
Author(s):
Research Area: Health
Type:
Abstract:
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173) made several major changes to Medicare including (1) adding a voluntary Medicare Part D outpatient prescription drug benefit effective January 1, 2006; (2) offering Medicare beneficiaries discounted prescription drugs in 2004 and
2005 through an endorsed discount card; (3) modifying various Medicare payment rates.
The new Medicare drug benefit is funded in two ways: (1) by traditional Medicare funding through enrollee payments and the Health Insurance Trust Fund; and (2) by phased-down (commonly referred to as “clawbackâ€) payments from the
states to the federal government. The state payments reflect the fact that starting in 2006, Medicare Part D will replace the prescription drug benefits currently received by dual eligibles (individuals enrolled in both Medicaid and Medicare) through state Medicaid programs.
The funding mechanism for the new Medicare prescription drug benefit has the potential to reduce both Medicaid and other state health expenditures. However, two types of issues associated with the financing of Part D may affect the potential for state budget savings: (1) technical issues associated with the formula for calculating
phased-down state payments to the federal government; and (2) policy issues raised by MMA that may directly or indirectly impact Medicaid and other state health programs.
This report outlines the issues associated with the financing of Part D coverage through phased-down state payments to the federal government, as well as the
potential impacts of the Medicare drug benefit on Medicaid and other state health expenditures. It will not be updated.