May 11, 2006
As is being widely reported in the press, the initial sign-up period for the new Medicare drug benefit expires on May 15. After Monday, most Medicare beneficiaries that have not signed up for drug coverage will have to wait until next fall and their coverage will not be effective until January 1, 2007. More importantly, Medicare beneficiaries that do not sign up by this May 15 deadline will be forced to pay a financial penalty if they later decide to sign up for coverage (see details on the late enrollment penalty below).
It is projected that as many as 5.7 million of the 42 million Medicare beneficiaries have not signed up yet. These 5.7 million beneficiaries are split among those who have little or no current drug costs and low-income beneficiaries that stand to gain the most from the program. Both have strong reasons for needing to sign up by May 15. Those with little or no drug costs can get financial protection against future high drug costs and avoid a late enrollment penalty. In addition, since the Medicare drug benefit is an insurance program, enrolling beneficiaries with little or no drug costs helps keep the benefit affordable for those with very high drug costs over time.
Last week, the Centers for Medicare and Medicaid Services (CMS, the federal agency that administers Medicare) announced that low-income beneficiaries (those at or below about $15,000 in annual income and assets below about $11,500) will NOT face any late enrollment penalty and can enroll anytime after May 15. These Medicare beneficiaries generally qualify for “extra help” (also known as the Low-Income Subsidy, LIS) that offers them deep discounts on monthly premiums, no deductible, and no gap in coverage. These low-income beneficiaries must first apply with Social Security for this “extra help” subsidy.
Medicare beneficiaries with incomes above about $15,000 (150 percent of the federal poverty level) that do not enroll by May 15 will face a financial penalty. This penalty is one percent per month for every month after May 15 that an individual has not signed up. That one percent however, is not based on the premium of the plan an individual chooses. Rather, it is based on the national average premium offered by insurers in the year that coverage starts.
Thus, an individual cannot keep the penalty low by choosing a cheaper policy. Again, since enrollment will not open again until November 15, 2006, the initial minimum penalty will be at least seven percent, on top of increased premium rates for the 2007 plan year. Moreover, the late enrollment penalty stays with a late enrollee for the rest of their life.
It is important to note that in most states, drug benefit coverage is available for as little as $10 to $15 per month and in many states only $5 per month. Further, individuals willing to enroll in Medicare Advantage plans (Medicare HMOs) can access drug coverage at no additional premium in every state. In other words, affordable coverage options are available in most states to avoid being stuck with a late enrollment penalty.
Between now and May 15, help is available through 1-800-MEDICARE. CMS has announced that extra operators have been added for the expected surge in applications that will be coming over the next four days. In addition, the following online links are recommended:
One of the most challenging problems with the roll-out of the Medicare drug benefit has been disruption to existing programs sponsored by drug manufacturers that offer free or deeply discounted drugs to low-income people. Earlier this year, many of these programs either cut off enrollment, or ended assistance for Medicare beneficiaries. The idea was to encourage Medicare beneficiaries to enroll in Part D coverage and not rely on drug manufacturer PAPs as a substitute for coverage – and thereby expose low-income beneficiaries (especially those between 150 percent of poverty and 300 percent of poverty) to the late enrollment penalty.
In addition, an opinion letter from the HHS Office of Inspector General raised a series of complicated issues involving violations of federal laws governing antitrust and anti-kickback protections with respect to manufacturer-sponsored PAPs. However, in the absence of these PAPs many low-income Medicare beneficiaries have been left worse off under Medicare Part D than they were when they received deeply discounted or free medications. This is especially the case for beneficiaries at or below 150 percent of the federal poverty level that have assets that made them ineligible for the “extra help” subsidy.
In recent weeks, there has been a flurry of activity as several drug manufacturers have either reopened their old programs, or established new programs. More drug companies are expected to follow suit in the coming days. What is clear however is that standards issued by the HHS Inspector General require that these manufacturer-sponsored PAPs operate completely independent from Part D coverage. In other words, the PAPs are not allowed to coordinate with, or fill in gaps for, Medicare drug coverage. Several of the newly revised and reopened PAPs require an enrollee to demonstrate that they are NOT enrolled in Medicare Part D or have applied for “extra help” and been denied.
Some of these manufacturer-sponsored assistance programs will eventually require a certification on the part of the Medicare beneficiary that: 1) they will not submit a claim to their Medicare drug plan, and 2) they understand that medications provided by the drug company is outside of Part D and cannot count toward meeting the $3,600 catastrophic threshold. Each program is slightly different, so qualified low-income beneficiaries should carefully review eligibility requirements and program rules before applying. Among the companies that have reopened or reestablished their PAPs are Astra-Zeneca, Eli Lilly, Glaxo-Smith-Kline, Janssen, Merck, and Schering Plough.
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