Medicare Benefit Will Cut Low-Income Seniors’ Drug Bills In Half, PwC Says

Out-of-pocket prescription drug spending by low-income seniors will be cut in half under the Medicare Part D benefit, according to a new PricewaterhouseCoopers analysis.

The analysis, prepared for the Alliance to Improve Medicare, estimates that average out-of-pocket spending by low-income seniors without Medicaid will drop from about $1,495 a year to $725 a year with implementation of the benefit.

Former Medicare administrator and Project HOPE Senior Fellow Gail Wilensky, PhD, highlighted the analysis during testimony at a Senate Special Committee on Aging hearing July 19.

Benefits to "low-income beneficiaries are very substantial and will mean that most of their prescription drug expenses will now be covered by Medicare," Wilensky said.

PwC estimates the Medicare benefit will cover "85% of the total prescription drug costs for beneficiaries that are below 150% of the poverty line who meet the asset limits for that group," Wilensky noted.

The new benefit will cover a much greater percentage of spending by the lowest-income seniors who constitute the current "dual eligible" population covered by both Medicaid and Medicare.

According to the PwC analysis, the new benefit will cover 98% of prescription drug spending by the dual eligibles, "even without supplementary support by the states," Wilensky said. The analysis estimates that dual eligible seniors will face only about $50 per year in out-of-pocket costs, on average.

Wilensky noted that there are concerns about the transfer of dual eligibles into the new benefit.

However, she stressed, it should be remembered "that there have been a lot of problems with pharmaceutical coverage for dual eligibles all along."

"Under the new Medicare legislation, dual eligibles will have an entitlement to drugs and states won't be able to impose arbitrary restrictions on the number of prescriptions, both of which states could and did do under Medicaid," Wilensky said.

AARP is focusing on ensuring that there is a "smooth transition" for dual eligibles into the new benefit, board member Byron Thames, MD, told the committee.

"The statute specifically provides for auto-enrollment of Medicare beneficiaries who now get full health care coverage from Medicaid," Thames noted. "In making this transition, it is critical that there be no gap in coverage."

The statute says auto-enrollment should be used "only if a full dual beneficiary 'has failed to enroll' in a Medicare drug plan," Thames noted. "However, since states will likely discontinue Medicaid drug coverage right away, auto-enrollment of affected individuals should be effective no later than Jan. 1, 2006."

AARP is also urging an immediate effort to auto-enroll low-income seniors into the transitional assistance program that began in June (see ¹ (Also see "Medicare Card Auto-Enrollment Is Compatible With Competition – AARP" - Pink Sheet, 26 Jul, 2004.)).

In analyzing the low-income coverage planned under Medicare, AARP is most concerned about the asset test that will be used in determining eligibility for extra assistance, Thames said.

The test "penalizes individuals who, despite having very limited incomes, have managed to save a modest sum for retirement. In return...they are denied the comprehensive drug coverage available to those of similar means who have not saved for retirement," he declared.

Sen. Debbie Stabenow (D-Mich.) asked Centers for Medicare & Medicaid Services Administrator Mark McClellan about the asset test.

She expressed concern that seniors could have the value of burial plots or wedding rings counted against the $10,000 per person limit in total assets.

McClellan responded that the asset test would be implemented carefully.

"We have some discretion within the law on how we interpret things, like what counts for an asset....Congress intended for us to do a reasonable application of an asset test."

"We've got some work to do to make sure we implement this asset test effectively, but I can tell you right now...I am not going to be taking away benefits based on seniors keeping their wedding rings," McClellan said.

"That is not the way this program was intended to operate, and that's not the way it is going to operate."

Ranking Committee Member John Breaux (D-La.) noted the relative generosity of the Medicare asset test levels.

"The means test we used in this Medicare bill for prescription drugs in fact is substantially more generous than the existing Medicaid means test," Breaux said.

"It's not very much, but it's much more than millions of beneficiaries have today," McClellan agreed.

Out of a total beneficiary population of 15.2 mil., an estimated 4.5 mil. beneficiaries have incomes below 150% of the poverty line and meet the asset test.

"About a third of Medicare beneficiaries can get the additional assistance...being able to get your drugs for a few dollars a prescription, or at most, a few hundred dollars a year," McClellan said.

The PwC analysis concludes that the net federal spending under the new Medicare benefit will be allocated roughly in line with the proportion of seniors above and below 150% of the federal poverty level.

PwC calculated that about 63% of the gross federal spending under Medicare Part D will go to the low-income population. However, a portion of that spending will offset current federal spending under Medicaid, leaving 42% of net federal dollars going to the low income.

PwC estimates that 40% of Medicare eligible seniors are below the 150% FPL cutoff (or 14.8 mil. out of the 37 mil. total).