Updated: May 3, 2013 12:14PM
Originally published: August 15, 2005
I’m writing this column out of pure frustration. My mother received a booklet in the mail that’s supposed to explain the federal government’s new Medicare Part D, the drug benefit for seniors. We sat around my kitchen table trying to figure it out and deciding whether she should drop her supplemental policy (Plan J) that includes a drug benefit, and sign up for the new Part D.
If two intelligent, competent women couldn’t make that supposedly simple decision after an hour of trying, how on earth can Medicare expect elderly seniors to understand this program? So I resolved to get all the information necessary to understand Part D, and to become your resource for explaining it.
This is the first of what will be an occasional column on the subject as the process of choosing a provider begins Oct. 1.
Here’s what I know now about the Medicare Prescription Drug Improvement and Modernization Act of 2003, with help from Scott Loochtan, managing partner of Senior Services of Illinois, one of the providers of Medicare supplement policies for Blue Cross Blue Shield of Illinois.
Get ready to sign up
Starting Nov. 15, seniors will be given a chance to sign up for the new Part D prescription drug benefit, which will be administered by dozens of competing private companies, including HMOs, insurance companies and health insurers. The federal government itself will not provide the drug benefit.
Basically, Medicare set minimum standards that must be met by all the different private companies that will be offering Part D plans. Each company’s plan will be a little different, and some companies will devise drug plans that offer more benefits than the minimum for seniors willing to pay more money.
The government’s plan is a complicated one:
*Everyone with Medicare is eligible for the drug benefit.
*The premium will be about $33 to $35 per month or less than $425 a year, depending on where you live.
*All plans will be run by private companies, and you’ll have to choose based on price, ease of access, and whether they include the drugs you use in their plan.
*There will be a $250 annual deductible: the amount you pay for drugs before this insurance plan kicks in.
*Then from $250 to $2,250 worth of drugs, the insurance plan pays 75 percent of the cost, and you pay 25 percent.
*The Donut Hole: There’s a gap in coverage. For drug purchases from $2,251 to $5,100, you must pay 100 percent of the costs.
*After you’ve paid a total of $3,600 out of pocket, the plan goes into “catastrophic” mode, and pays 95 percent of subsequent costs.
And now you see why the calculations drove me crazy!
Leave it to the government to set up a complicated system like that. How could anyone’s mom figure it out? Fortunately, you won’t have to, because private providers are coming up with much simpler solutions.
But you’ll have to wait to hear them.
Information about Plan D is coming out piecemeal, and that’s intended by the law. Right now, many private companies are sending out booklets like the one my mom received, trying to explain Medicare’s plan. They include all the major players in the Medicare and managed-care business: Humana, Aetna, the Blue Cross plans, United Healthcare, Mutual of Omaha and many others.
But they must wait until Oct. 1 to send out information about their specific plans. You’ll start seeing lots of media ads from these companies starting in October as they try to get you to sign up.
As of this writing, more than a dozen companies have registered Part D plans in Illinois, and many have several options. But the details won’t be revealed until Oct. 1.
Here’s how companies will compete -- and how you’ll have to compare:
Basic price. Some companies will offer Medicare’s basic plan at a price even lower than the suggested $37 per month. Some companies will offer more expensive, less complicated plans, perhaps including a $100 deductible instead of Medicare’s $250, and a simple co-pay arrangement. They might charge a fee for each prescription, and perhaps a lower prescription fee if you use generic drugs.
Drug providers. Some plans will partner with drug retailers such as Walgreen’s and CVS, or even retailers such as Wal-Mart and Sam’s Club. Others will have several drug retailers, or require you to purchase drugs through mail-order pharmacies the providers designate.
Covered drugs. Plans will compete based on the drugs they offer, and perhaps the price. Medicare will list what drugs are allowed to be covered, called a “formulary.” Some plans won’t cover all drugs. Some plans will price drugs individually, instead of on a per-prescription co-pay basis.
As you can see there are a lot of complicated variables, just like the drugs themselves. That’s why you’ll see a blitz of advertising before the sign-up period starts on Nov. 15.
And you’d better pay attention because if you don’t sign up during the first open enrollment period from Nov. 15 though May 15, 2006, it will cost a lot more in late enrollment fees.
There’s one consolation: If you decide you don’t like the plan you’ve signed up for, you can switch plans without penalty in the last six weeks of every year.
So what should you do now if you’re a senior or if you have a parent who’s a senior?
Sit tight. Try not to get confused. You can’t even start making a decision until you see the information that private plans will release Oct. 1.
And I promise to do my best to sort it all out for you as the information becomes available. 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).