How To Understand Medicare’s New Drug Coverage: Insurance

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Between the commercials, the mailings, and the overwhelming media coverage, everyone knows that Medicare is unveiling new prescription drug coverage in 2006. But what exactly is Medicare’s Prescription Drug Plan, also known as Medicare Part D? How do the plans work? Are the plans right for you or your loved one? And when and how can you enroll?

Defining the Program
Medicare’s Prescription Drug Plan (Medicare Part D) is a new insurance program that will help seniors pay for their prescription drugs. Everyone who is currently enrolled in Medicare is eligible for drug coverage. If you are not enrolled in Medicare Part A or Medicare Part B, you will have to enroll in one of these programs before you can sign up for a prescription drug plan. Enrollment is entirely optional. However, you will benefit from making decisions early about whether or not you want coverage, since costs will increase significantly over time.

Understanding the Coverage
The new prescription drug coverage is an insurance plan. After enrolling, you will pay monthly premiums and a yearly deductible. Average monthly premiums are expected to be $35 per month. The deductible is the amount you will have to pay out-of-pocket before the insurance plan begins to pay and will average around $250 a year. After the deductible is met, Medicare will cover 75% of the next $2,000 of covered drug costs. You must then pay 100% of your drug costs until you have spent a total of $3,600 on prescriptions in one year. This period is commonly known as the coverage gap or “donut hole.” Once the $3,600 threshold has been met, Medicare will pay 95% of all drug costs for the remainder of the year.

Deciding if It is Right for You
The first step in the decision-making process is to calculate what you spend every month on prescription drugs. You can then determine your yearly drug costs. Many critics and potential enrollees have expressed a fear of the “donut hole” noted above, arguing that the gap in coverage is too large. However, Alan Dubow, Executive Director of Capital Health Solutions, points out that, “Based on a plan with a $35 monthly premium, if an individual spends more than $810 annually on prescription drugs, they will save money with this coverage, even if they end up in the gap.”

Even if your current costs are relatively low, you need to consider future drug needs. To estimate future needs, consider your personal and family medical history. Regardless of your current health, the likelihood of facing health problems that can be treated with prescription drugs increases significantly with age.

Additionally, you should consider the fact that costs for Medicare’s Prescription Drug Plan will increase over time. If you are eligible during the initial enrollment period and opt not to enroll, you will pay significantly more if you join at a later date. Medicare’s late enrollment penalty is 1% of the monthly premium for every month that you delay. This means that if you wait two years to sign up for coverage, you will pay 24% more per month. This is not a one-time penalty; the higher amount will become your permanent premium. The only way to avoid this penalty is by signing up during the initial enrollment period or transferring into the Medicare plan later from a plan that has “creditable coverage.”

If you have coverage through a former employer, private company, or Medigap plan, you will need to determine if it is creditable coverage. Creditable coverage is prescription coverage that is as good as, or better than, the new Medicare plan. Your current carrier is required to notify you as to whether or not your current coverage is creditable. If they do not contact you, call them to discuss your coverage. None of the current Medigap plans are considered creditable coverage. If you do have creditable coverage, you can opt to keep your current coverage and switch to a Medicare plan at a later date with no late enrollment penalty.

Enrolling in a Plan
If you decide to join Medicare’s Prescription Drug Plan, the next step is finding the plan that is right for you. Coverage will be delivered by a wide variety of national and regional Medicare-approved insurance companies. To find a plan that is offered in your area, contact Medicare for information or review the 2006 Medicare and You handbook that you will receive in the mail.

In order to find a plan in your area that covers the prescriptions you need, review the formulary, or list of covered drugs, for each plan you are considering. Monthly premiums, deductibles, covered prescriptions, and participating pharmacies will vary depending on the plan you choose. Starting on October 15, 2005, you can compare prescription drug plans on Medicare’s website or by calling their toll-free number. If you need individualized assistance with choosing the right plan, contact your local Senior Health Insurance Program (SHIP).

If you have a limited income, you may qualify for Medicare’s “Extra Help” program. Eligible individuals must have a yearly income of less than $15,000 for single people or $20,000 for married couples. If you have not received information regarding Extra Help but believe you are eligible, you should contact the Social Security Administration. You can also apply for Extra Help at your local Medicaid office.

The initial enrollment period for Medicare’s Prescription Drug Plan is from November 15, 2005 to May 15, 2006. If you enroll by December 31, 2005, your coverage will begin on January 1, 2006. If you are currently eligible but do not enroll before May 15, 2006, you will likely pay a higher premium if you join later. After the initial enrollment period, there will be an open enrollment period every year during which new enrollees may join the plan and existing participants can switch plans.

Because of the strict deadlines and significant late enrollment penalties, now is the time to review what Medicare’s Prescription Drug Plan has to offer. Whether or not you decide to enroll, you will undoubtedly benefit from carefully considering all of your options today.

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