Medicare: Enrollment in Medicare Drug Plans

Publication Date: November 2005

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) established a new voluntary prescription drug benefit under a new Medicare Part D. The new benefit becomes effective January 1, 2006. Prescription drug coverage will be provided through private prescription drug plans (PDP) or Medicare Advantage prescription drug (MA-PD) plans. At a minimum, these plans will offer "standard coverage" or alternative coverage with actuarially equivalent benefits. Beneficiaries will be required to enroll in one of these private plans in order to obtain coverage.

Persons first eligible for Medicare on or before January 31, 2006, have an initial enrollment period beginning November 15, 2005, and ending May 15, 2006. If they enroll by December 31, 2005, their coverage will begin January 1, 2006. If they enroll later in the initial enrollment period, their coverage will begin on the first day of the first month following the month of enrollment.

In general, an individual who does not enroll during his or her initial enrollment period will only be able to enroll during the annual open enrollment period, which will run from November 15 to December 31 each year. Coverage will begin the following January 1. Thus, individuals first eligible for Medicare on or before January 31, 2006, who fail to enroll by May 15, 2006, will not be able to enroll until the open enrollment period beginning November 15, 2006. If these individuals enroll at that time, their coverage will begin January 1, 2007.

Medicare beneficiaries who do not enroll in a plan during their initial enrollment period will have a delayed enrollment penalty if they enroll at a later date. However, they will not be subject to a penalty if they have maintained "creditable" drug coverage through another source. One source of possible creditable coverage is retiree health coverage offered by a former employer or union.

The late enrollment penalty is 1% of the base beneficiary premium for each uncovered month. The "base beneficiary premium" is a national figure; it may therefore be different from the premium for the plan selected by the beneficiary. Individuals first eligible for Medicare on or before January 31, 2006, who defer enrollment until the November15-December 31, 2006 enrollment period would have seven uncovered months, unless they had maintained creditable coverage. Their penalty would therefore be 7% of the base beneficiary premium.

Special enrollment provisions apply to some low-income persons. Some categories of low-income individuals will be randomly assigned to a plan if they fail to select a plan by a target date. They will be allowed to change plans if they feel the plan selected for them fails to meet their needs.

Some observers have suggested that the range of options posed by the new drug benefit may prove confusing for some Medicare beneficiaries. Some have recommended deferral of the application of the late enrollment penalty. The report will be updated as events warrant.