Prescription Drugs

Prescription drugs are the biggest out-of-pocket medical expense for most seniors. In addition, until recently there was very little supplemental health insurance coverage for those drugs -- which have become increasingly expensive.

Choices for having some prescription drug coverage include:

• Medicare Drug Plan: Starting in 2006 you are able to enroll in a Medicare Drug Plan. There is a variety of prescription drug coverage options offered by private insurers. The Medicare Drug Plan is an additional type of Medicare supplemental insurance -- like Medigap or Medicare Advantage but it exclusively covers prescription drugs.
  
  Like all Medicare supplemental insurance options -- you are required to be enrolled in Medicare Part A and Medicare Part B and be up to date with your Medicare Part B premiums.
  
  While plans vary, the costs for these plans are generally around a $35 monthly premium and you pay the first $250 per year for your prescriptions (your deductible). You then pay 25 percent of your drug costs until you have spent $2,250 a year. You then pay 100 percent of your prescription costs until your out-of-pocket spending reaches $3,600. After you have spent $3,600, you only pay a small co-payment for the rest of the calendar year for additional drug spending.
  
  You can sign up for one of these new plans any time.
  
  See below for a more detailed assessment of the New Medicare Prescription Drug Plan.
• Retiree Plans: If your employer offers a retiree health plan that includes prescription drug benefits, this may be the best way to have coverage for drugs. However, be aware that your employer can change or drop coverage at will.
• Medigap and Medicare Advantage: Choose Medicare Supplemental Plans for Prescription Drug Coverage:
  • Some Medicare Advantage plans offer drug coverage
  • Medigap policies H, I and J offer some drug coverage. However, these policies will not be available after 2006 because the government is introducing the Medicare Drug Plan.

The New Medicare Prescription Drug Benefit

Prescription drugs are the biggest out-of-pocket medical expense for most seniors. Worst of all, until recently there was very little supplemental health insurance coverage for those drugs -- which have become increasingly expensive.

Drug Discount Cards as well as Medigap policies H, I and J did offer some drug coverage to seniors. However, these policies are being replaced by the Medicare Prescription Drug Benefit.

In 2003 Congress passed Medicare Prescription Drug Benefit legislation. This legislation is intended to assist senior citizens with their prescription drug costs by supplementing Medicare Parts A and B with prescription drug coverage.

The Medicare Prescription Drug Plan is an additional type of Medicare supplemental insurance -- like Medigap or Medicare Advantage -- but it exclusively covers prescription drugs.

For seniors who enrolled in the program before the end of 2005, the coverage went into effect on January 1, 2006.

Are There Other Options Besides the Medicare Prescription Drug Benefit for Prescription Drug Coverage for Seniors?

The Medicare Prescription Drug Benefit will likely prove to be the most popular prescription drug coverage option for most seniors. However, retirees do have other options – many of which may offer more comprehensive or cost effective coverage than Medicare -- including:

• Retiree Plans: If your employer offers a retiree health plan that includes prescription drug benefits, this may be the best way to have coverage for drugs. However, be aware that your employer can change or drop coverage at will.
• Medicare Advantage: Some Medicare Advantage plans offer drug coverage.

However, these plans may change with the introduction of the Medicare Prescription Drug program. It is very important to talk with your insurer about changes. Your insurer may now require that you also be enrolled in the Medicare Prescription Drug Program.

It is also important to note that Drug Discount Cards as well as Medigap policies H, I and J (all of which offered some prescription drug coverage) were phased out by Jan. 1, 2006. If you had coverage under one of these plans, it is no longer available.

Who Can Enroll in the Medicare Prescription Drug Benefit Program and When?

Like all Medicare supplemental insurance options -- you are required to be enrolled in Medicare Part A and Medicare Part B and be up to date with your Medicare premiums.

You can sign up for one of these new plans any time.

How Much Does a Medicare Prescription Drug Plan Cost?

While plans will vary, the costs for a Medicare Prescription Drug Benefit Program will include:

A Monthly Premium: Most plans will charge approximately $37 a month – this is the basic cost for being enrolled in the program.

Deductibles: For most plans, you will pay the first $250 per year for your prescriptions (your deductible).

Co-payments: After you have spent the first $250 for prescription drugs, you will then pay 25 percent of your drug costs until you have spent $2,250 a year. This is your co-payment. The insurer will pay the other 75 percent of the cost of the drugs.

If you need to spend more than $2,250 in the year for prescription drugs, you will then pay 100 percent of your prescription costs until your out-of-pocket spending reaches $3,600. After you have spent $3,600, you will only pay a small co-payment for the rest of the calendar year for additional drug spending.

Cost Summary

This cost structure can be confusing. It might help you to evaluate the fixed and variable costs.

Yearly Fixed Costs:
$37 a month x 12 months = $444

Yearly Variable Costs
Depending on whether or not you require drugs and how many, you will pay:
Between $0 - $250 a year for your deductible
Between $0 - $3,360++ a year for co-payments

TOTAL VARIBLE COSTS: $0 - $3,600 plus nominal additional co-payments after you have spent $3,360 for prescription drugs.

TOTAL COSTS FOR A MEDICARE PRESCRIPTION DRUG PLAN: Between $444 - $4,054+

What Do the Plans Cover? Should Everyone Sign Up?

The Prescription Drug Plans, also known as Medicare Part D, can be a great addition to your medical coverage – though it is not cost effective for everyone. And, choosing the right plan can be a very complex and confusing process.

The plans vary greatly and there are around 40 different options available in most states.

When choosing whether or not to enroll in a plan and deciding which plan is best for you – consider the following questions carefully.

What drugs are covered by the plan?

Not all drugs are covered by all plans. For any plan you are considering you need to make sure that they cover the prescription drugs you need now or think you might need in the future.

If you need a drug not covered by your plan, you will pay for it out of pocket.

Where can I purchase these drugs?

In most cases you must go to the pharmacy listed on the insurance plan that you select. If you purchase your drugs elsewhere then you will have to pay the whole cost yourself.

You need to make sure that the pharmacy that you use or could use is a subscriber in the plan.

What are the co-payments?

Some plans will offer lower deductibles but higher co-payments and visa versa.

How does the plan handle generic drugs?

Some plans will require that you purchase the generic brand of the drug. If you opt for the name-brand you will pay a higher co-pay or even full price.

What is in the fine print?

The insurance companies are allowed to change the list of drugs that they cover or raise the price of these drugs. They are only required to give you 60 days notice first.

Be sure to understand what you can do if changes like this are made to the plan. What appeal rights do you have and where do you start?

Most importantly, will a prescription drug insurance plan be cost effective for you?

The most important question that needs to be answered is whether you need this Prescription Drug Benefit insurance plan now? Are the total costs associated with one or the other of these plans more or less than your current out of pocket costs for your prescription drugs?

Even if your current costs are lower than the total cost of one of these prescription drug plans, there is the unknown factor of whether your costs, as you continue to age, will rise and exceed the plans' costs.

Plus there is an incentive for signing up immediately; for every month that you delay, the premium goes up.

How Does This Program Work with Drug Discount Cards?

For the past two years, seniors, who don't have prescription drug coverage, could purchase an interim drug discount card that provided about a 15 percent discount on their prescription drugs. But that has been phased out.

In the back of the Medicare and You 2006 booklet there is a list of the insurance companies that are participating in the Prescription Drug Benefit Plan. Depending on the state that you reside in, the companies that are participating may differ. Which company best meets your needs may vary from year to year as they change the annual deductible, the co-payment, the list and costs of the various drugs, etc.

Low Income Assistance

The premiums charged for a Prescription Drug Benefit Insurance plan are income and asset dependent. So if you think that you may qualify for a reduced premium, you will have to submit financial information to determine if you indeed qualify for a lower premium or deductible. Depending on your income and net worth, you could qualify for low-income assistance and you may end up not having to pay anything at all.

There is a useful cost calculator at the U.S. Medicare web site that will help you determine this eligibility:

http://www.medicare.gov/medicarereform/drugbenefit.asp

How Do You Research These Prescription Drug Benefit Plans and Sign Up?

There are various ways to learn more about a Prescription Drug Benefit Insurance Plan.

• NewRetirement.com can connect you with a prescreened supplemental Medicare insurance provider who can guide you through the various options.
• If you have a Medicare card, you should have received the 2006 "Medicare & You" booklet, which describes the new Medicare Prescription Drug Plans being offered by private insurance companies who have signed up as providers under the Medicare Prescription Drug Benefit program. If you haven't received this booklet, your nearest Social Security Office will have copies available.
• The Medicare web site is an excellent source of information.
• You can telephone Medicare and request more information at (800) 633-4227 (MEDICARE).
• Many local Social Security offices and Senior Citizen Centers are sponsoring meetings to help seniors understand these programs. Check listings in local newspapers, newsletters, and bulletin boards.