Medicare Rx Benefit: Sorting Out the Options

WebMD looks at the choices facing Americans who enroll in Medicare's prescription drug benefit.

Medically Reviewed by Louise Chang, MD
5 min read

The start of enrollment for Medicare's new prescription drug benefit is just six weeks away. Medicare Part D, as it's called, will be the biggest addition to the program since it was founded in 1965. Although Part D will offer more choices for drug plans, it will also add layers of complexity to a national health insurance program that for decades has prided itself on simplicity, at least from the patient's perspective.

Part D sign-up will offer 42 million elderly and disabled Americans varying degrees of help paying for prescriptions. But getting the coverage requires that beneficiaries make some key decisions. A full two-thirds of Medicare members already have some form of private or public drug coverage. If you're one of them, you'll have to know how your coverage might change and what form of insurance is best for you.

Starting around Oct. 15 Medicare expects to launch a web site designed to help beneficiaries choose the best plan in their area based on the prescriptions they take, the extra costs they can afford to pay, and their existing forms of insurance.

More than 6 million low-income Americans on Medicare already have their prescription drugs provided through state Medicaid programs. But when Part D kicks in on Jan. 1, 2006, all of that coverage will switch to Medicare automatically.

In an effort to avoid confusion, Medicare is automatically placing so-called "dual eligibles" into a Part D plan. But to avoid favoritism, the government is picking the plans at random in each geographical area. But since each area will be offering 10 to 20 plans, you'll still need to check if the plan you've been placed in is right for you; if not, you'll need to switch.

With the change in drug coverage, dual eligibles may notice that their drug coverage is decreased from what was previously covered by Medicaid.

By the end of October the government will mail out letters to all dual-eligible beneficiaries informing them of the switch. The next step is to check the plan's covered drug list, or formulary, to see if all the drugs you take are all covered. Chances are they may not be, so it's up to you and your doctor to decide whether other covered brand name drugs or generics are similar enough to switch.

"They should run to their physicians with that letter," says Sam Muszynski, an attorney and director of the office of health care financing at the American Psychiatric Association.

The American Psychiatric Association is especially concerned about dual-eligible patients with mental illnesses requiring medication. Many of these patients use multiple medications but may not be able to make decisions about plan choices.

In addition, Medicare is not covering some psychoactive drugs, including benzodiazepines, used by some patients.

State health insurance programs (SHIPs) are taking the lead in providing advice directly to low-income patients on how to sign up for a drug plan. For mentally ill patients and their loved ones or caregivers, the National Alliance for the Mentally Ill and the National Mental Health Association are both offering resources to help.

Millions of seniors already have drug coverage through a retiree health plan or a current employer. If that includes you, you'll have to decide whether to keep your private coverage or join Part D.

First, your employer will have to let you know if they are keeping coverage. One possible effect of the new government coverage is that it may cause private insurers to drop their drug plans. Medicare is trying to avoid this by paying subsidies to private plans as an incentive for them to keep prescription insurance.

"It appears that many if not most of them will continue, at least for the time being," says Cheryl Matheis, director of health strategies for AARP.

Employers are required by law to inform beneficiaries about their existing drug coverage and whether they're keeping it. If so, they are also required to tell you whether that coverage is as good or better than what Part D is offering.

They key word to look for is "creditable." A private plan that is creditable is one that is functionally equivalent or better than Part D. If yours is, you can stay with it or choose to go with a Medicare plan. And if you choose private coverage and go with Medicare later, you won't have to pay a penalty for late enrollment.

Participation in Part D is purely voluntary. But if your private coverage is not creditable, you'll pay a premium penalty if you decide to switch to Medicare after May 15, 2006.

Again, you'll want to use Medicare's web site to compare formularies and out-of-pocket costs like co-payments, deductibles, and co-insurance to see which kind of coverage is best for you.

The key is that letter from your employer. If you don't get one by the end of October, get in touch with your employer's human resource department to find out when it's coming and whether your coverage is creditable.

Some seniors on Medicare get drug coverage through supplemental insurance plans known as Medigap. Medigap plans are labeled by letters from A to L.

Plans H, I, and J are the only Medigap plans that carry drug coverage, but in almost no cases do they qualify as creditable. In these cases almost all Medigap customers would be best served buying into Part D insurance, Matheis says.

Possible exceptions are so-called nonstandardized Medigap plans in Massachusetts, Wisconsin, and Minnesota. Some of these plans may be creditable, so it is best to wait for that letter from the carrier to see if that magic word shows up.

Some states have publicly-funded Pharmaceutical Assistance Programs for low-income seniors not on Medicaid. Most of those programs are expected to "wrap around" Part D, meaning that they can still help pay some of your co-payments and deductibles once you sign up for a plan. Medicare has not yet completed all of its agreements with the state plans but should have the arrangements ironed out soon.

Here are some important dates to remember:

  • Oct. 15 -- The approximate date Medicare expects to launch its Part D comparison resources at the Medicare web site and 1-800-MEDICARE.

  • End of October - This is the time when Medicare and employers will send letters to beneficiaries either notifying them of their automatic Part D enrollment (in the case of Medicaid) or "creditable" status of private insurance.

  • Nov. 15 - Open enrollment for Part D plans begins.

  • Jan. 1, 2006 - Part D prescription drug benefits begin.

  • May 15, 2006 - Open enrollment ends. If you're Medicare eligible and without a creditable private plan, you'll pay a 1% per month premium penalty if you sign up for Part D after this date.

The Access to Benefits Coalition is a group of health organizations working to smooth the transition to Part D, especially for low-income seniors.

The Medicare Rights Center has useful resources and tips for beneficiaries at its web site or by calling (212) 869-3850.

AARP has published a 24-page brochure called "Medicare Rx Drug Coverage: What You Need to Know." It can be ordered on the group's web site.

Show Sources

Sources: Cheryl Matheis, director of health strategies, AARP. Sam Muszynski, director, office of health care financing, American Psychiatric Association. Medicare Rights Center. Centers for Medicare and Medicaid Services.
View privacy policy, copyright and trust info