RD74 - Medicare Part D - Update

Executive Summary:

Medicare Part D - Update


The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) created Medicare Part D and was enacted on December 8, 2003. Medicare Part D offers outpatient prescription drug coverage for Medicare beneficiaries who enroll. This prescription coverage first became available on January 1, 2006. Medicare beneficiaries with fee-for service plans may obtain coverage through a stand-alone prescription drug plan (PDP) or through a Medicare Advantage Prescription Drug plan (MA-PD) which covers all Medicare benefits. The Kaiser Family Foundation reported in February 2007, 43 million or 81% of Medicare beneficiaries were enrolled in a fee-for-service program and 8.3 million or 19% were enrolled in a Medicare Advantage plan. Medicare Advantage plans are “private health plans that receive payments from Medicare" and may receive a small additional monthly fee from the Medicare beneficiary. (Source: Kaiser Family Foundation, Medicare Fact Sheet on Medicare Advantage, February 2007.)


Under the prescription drug benefit offered by Medicare Part D in 2006, beneficiaries:

• Pay the first $250 in drug costs (deductible);
• Between $250 and $2,250, pay 25% of total drug costs;
• Between $2,250 and $5,100, pay 100% of total drug costs possibly up to $2,850 out-of-pocket.
This is commonly referred to as the "donut hole.";
• Pay the greater of $2 for generics, $5 for brand drugs, or 5% co-insurance, once the catastrophic
threshold for drug costs of $5,100 is reached.

Premiums average $32.20 per month, but vary greatly by plan and region.

Dual Eligibles

In light of prescription drug coverage by Medicare Part D, state Medicaid programs are no longer responsible for providing drug coverage for dual eligibles. (Dual eligibles are individuals who are eligible for both Medicare and Medicaid benefits.) All dual eligibles are required to enroll in a Part D plan; however, they are not responsible for paying monthly premiums, deductibles, or co-pays for drug costs over $5,100. Dual eligibles with incomes below 100% of FPL must pay $1 to $3 co-pays and dual eligibles with incomes over 100% of FPL must pay $2 to $5 co-pays.

In exchange for no longer providing prescription drug coverage for dual eligibles, State Medicaid programs are required by federal law to help finance Part D through what has been termed the "clawback." The "clawback" formula relies on a per capita expenditure that is largely based on a state's Medicaid spending for prescription drugs for dual eligibles in calendar year 2003. As of June 2006, Virginia’s "clawback" payments were estimated to be $165,787,204 for FY 2007 and $178,243,970 for FY 2008.

Low-Income Beneficiaries

Medicare beneficiaries, with incomes below 135% of FPL and assets of less than $6,000 (or $9,000 for a couple), receive a subsidy to cover the average monthly premium for basic coverage in their region. These beneficiaries do not have deductibles, but are required to pay $2 to $5 co-pays until $5,100 in total drug costs have been paid out during the year.

Medicare beneficiaries, with incomes below 150% of FPL and assets less than $10,000 (or $20,000 for a couple), receive a sliding scale premium subsidy, but have a $50 deductible. Below $5,100 in drug costs, they must pay 15% co-pays and once the $5,100 is reached, the beneficiaries are responsible for $2 to $5 co-pays.

Part D Plans in Virginia

As of June 2006, 18 companies offered 41 Medicare prescription drug plans (PDPs) and 10 companies offered 26 Medicare Advantage Prescription Drug (MA-PD) plans in Virginia.

JCHC Staff for this Report
Catherine W. Harrison
Senior Health Policy Analyst