San Antonio Express-News
December 23, 2003

Costs of Medicare Prescription Drug Plan

copyright 2003, Paul Premack

The formal name for the new law is the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MPDIMA). Its final government printing office version is 415 pages long.

As you might know, Medicare already has Part A (hospital expenses), Part B (physician expenses) and Part C (HMO option). MPDIMA’s banner change is the new prescription drug coverage, Part D.

Part D will technically be optional when it comes into effect in 2006 (but people will feel a lot of pressure to sign up anyway). If you do sign on, then you will pay $35 per month as a premium for the coverage. If you elect not to participate and then change your mind at a later date, you will have to pay a higher monthly premium.

As to how much money the program might save you, first look at your expenses. In addition to the $35 monthly premium, participants will pay the first $250 of prescription costs out of pocket as a deductible. They will pay 25% of the cost of any additional prescriptions until the costs total $2,250. Then coverage shuts off, and participants pay 100% until the costs total $5,100. Then, in general, participants will pay 5% for any additional prescription costs.

How does that affect you, with less than $600 in prescription costs last year? First, you spend $420 a year in premiums to the insurance company you sign up with. Then, you spend $250 out-of-pocket for the deductible on your prescriptions. After that, you pay 25% of the remaining $350 in prescription costs (another $87.50) and Part D pays the other 75%.

Under section 101(a) of the new law, you pay $757.50 (the $420 premium, plus $250, plus $87.50) for your $600 of prescriptions. You read that right. Participants with prescription expenses below $810 pay extra, and those with prescription expenses above $810 get some of the bills paid by Part D.

For instance, someone with $900 in prescription expenses for the year will spend $832.50 out-of-pocket (93% of the total). A participant with $12,000 in drug bills pays $4,365 (36% of the total). Access the calculator at www.Premack.com to see how you might fare when Part D begins.

The raw calculations do not tell the whole story. There will be various drugs that are covered, and drugs that will not be covered by Part D. Your expenses for non-covered drugs will not count toward your deductible or co-payments, increasing your overall share of the burden.

Further, you will have to keep close track of your drug expenses. The provider of your Medicare drug plan can ask you if you have, or expect to have, any reimbursement from a third party (like another insurance plan). Failure to give a true answer will be grounds under the new law for termination of your Part D coverage.