Updated: May 3, 2013 12:14PM
Originally published: October 3, 2005
The new Medicare Part D drug benefit will impact millions of seniors. Some are already feeling the cost of taking multiple medications. Others worry that a future serious illness will make a big dent in their monthly retirement budget. And all Medicare-eligible Americans are now confronted with purchasing an insurance policy that will -- at least in part -- protect them against this rising cost. This is one drug war where you can’t afford to “just say no!”
In Sunday’s Chicago Sun-Times (and available online at www.Terry Savage.com), I outlined the issues you’ll need to consider when choosing a Medicare Part D plan. My columns have generated many questions, and with the help of Bob Herskovitz, communications director of the Centers for Medicare and Medicaid Services, here are some answers. We’ll tackle other questions and comments in a future column.
Q. What happens if I fail to sign up for a plan by May 15?
A. You can be charged a penalty of 1 percent per month you remain without coverage. Since every plan has a different price -- and some Medicare Advantage programs (the HMO type plan) offer drug coverage at no extra cost -- it’s hard to figure out exactly what this penalty means. But Herskovitz says that the rates for individuals who missed the deadline will change every month.
Q. My company offers prescription drug coverage for retirees. They’ve told me to stick with them. What if I stay with my company and don’t sign up for Part D and then later they drop this coverage?
A. First, you need to make sure your current coverage under the corporate retiree health plan meets the criteria for “Creditable Coverage” -- that is, meets the Medicare standards. Look for information coming from the firm or union this fall, detailing how they will work with Medicare on prescription drug coverage and what decisions you will have to make. If you do not hear from them, visit their Web site or call your benefits administrator.
If the employer tells you to “stick with them,” they also need to send you a notice of “creditable coverage.” Then you will not be subject to the late enrollment penalty as long as that employer’s plan continues to offer creditable coverage. If at any later date the plan is no longer creditable, or available, they must inform you with a notice of non-creditable coverage. You will then have 60 days to enroll in a Medicare Prescription Drug Plan without penalty.
Q. I already have a Medicare supplement policy (Plans H, I or J) that contains prescription drug coverage. What should I do?
A. Medicare prescription drug coverage will generally provide significant savings compared to what you are paying in co-payments for drugs under your Medigap plan, and will generally provide much better protection against high drug expenses as well. These supplement plans do not offer coverage for catastrophic drug costs that the new Part D plans must offer.
Generally Medigap plans (H, I or J) are not considered “creditable coverage.” Thus, if you later decide to opt out of your supplement, you will be penalized if you choose a Medicare Part D plan in the future.
You can’t have both a Medigap drug policy and a Medicare Part D policy. If you opt to stick with your original Medigap policy, and later decide to drop it and participate in Part D, you will pay a higher Part D premium and you are not guaranteed to qualify for a Medigap policy without drug coverage.
Q. I have too much in the way of assets to qualify for the Federal Part D, but not enough extra income to pay these Part D plans with the $250 and donut hole, etc. What is being done for low-income seniors who own homes and have some savings, but can’t afford the extra Part D monthly premium?
A. Check out my column of Sept. 12, online at www.TerrySavage. com. If a married couple’s savings, investments and real estate (other than their home) are worth less than $23,000, they will meet the asset criteria for “Extra Help.” (This limit will be higher in 2006.) Homeownership is not taken into account in this formula.
The IllinoisCares Rx plan will help you with the cost, but you must first choose a basic Medicare Part D prescription drug plan. The Illinois Cares Rx plan does not have an asset test, and is based solely on income levels. A reminder: An individual can reapply for Extra Help at any time that his or her circumstances change, which could happen if you later spend down your current resources.
We’ll keep accepting e-mails sent to Terry@TerrySavage.com or Savage@Suntimes.com and responding to most general questions. It’s important that you get this decision right. And that’s The Savage Truth.
Terry Savage is a registered investment adviser and the author of the newly published The Savage Number: How Much Money Do You Need To Retire? (256 pages, Wiley, $24.95).