Straight FAQs on the Medicare Drug Plan

Retirees soon will get an overdose of information on the government's new medicare Part D coverage. Here's what you need to know -- whether you're on medicare yourself or are helping your parents with their decisions.

By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance

March 2006

If you're 65 or older, your mailbox is probably starting to explode. As insurers advertise their new medicare prescription drug plans and consumer groups offer to help, it's easy to get overwhelmed with the volume of information. Here's what you need to know -- whether you're on medicare yourself or are helping your parents with their decisions.

• What's changing?
• When can I sign up?
• What if I miss the deadline?
• What's covered and what will it cost?
• Should I sign up?
• What if I don't like my insurer? Can I switch plans?
• What should I look for in a Part D policy?
• Where can I find more help?

What's changing?
This will be the first time that medicare provides coverage for most prescription drugs. Medicare will regulate the coverage, but private insurance companies will sell the individual policies. You'll be able to buy either a stand-alone Part D policy (just drug coverage) or sign up for a medicare HMO (called Medicare Advantage) that includes prescription drug coverage. Participation is voluntary.

When can I sign up?
Medicare beneficiaries were able to start signing up November 15, 2005, and have until May 15, 2006.

What if I miss the deadline?
If you already qualify for medicare and sign up after May 15, 2006, you may have to pay a penalty -- 1% of the average national premium for every month you delay. And you would have to wait for the next Part D enrollment period -- each November 15 to December 31.

So, for example, let's say you take a wait-and-see approach now, but five years later require an expensive prescription and decide to sign up. If you qualify for a policy with a $50 monthly premium, and the national premium average is, say, $60, then you would have to pay $89 per month -- $50 plus a $39 penalty, or 0.60 times 65 months (if you sign up in November 2011).

One exception to the penalty is switching to Part D coverage from another plan that is considered at least as good as medicare's (called "creditable coverage" in government jargon). For example, say you don't switch now because you want to keep your retiree drug benefits from your former employer, which is deemed creditable by medicare. If your former employer later trims the benefit or halts it altogether you would not be penalized for making the jump to medicare.

What's covered and what will it cost?
The coverage and cost will vary from company to company, but the plans have all been approved by the Centers for Medicare & Medicaid Services.

The standard plan has a $250 deductible, then will cover 75% of the next $2,000 of your drug costs. After that, you pay up to $2,850 in additional drug costs yourself. Medicare pays up to 95% of any drug costs above that.

Some plans will fill in those coverage gaps in return for a higher premium.

The average premium for the standard plan is about $32 per month, although some are charging less than $20.

Should I sign up?
Whether you should sign up for the plan depends on the type of coverage you have now.

• If you have employee or retiree benefits considered better than Part D, then that's generally your best bet. You should receive a notice from your employer explaining how the coverage might change next year and how it compares to medicare's plan - the official "creditable coverage" determination made by an actuary.
  
  Remember, you won't get penalized if your employer lowers your benefits later and you switch to medicare's plan.

• If you don't have prescription coverage now or if your employee coverage isn't considered as good as medicare's plan, consider signing up for the medicare plan even if you don't have many drug costs now. That way you'll avoid the penalty, and it's likely that you'll take more drugs as you get older. You may want to start with a low-cost basic policy, then switch to more robust coverage later (you'll generally be able to switch once a year).

• If you have medigap drug coverage -- medicare supplement plans H, I or J -- then it's a good idea to switch to the medicare plan. You can buy a Part D policy and keep your current medigap plan minus the drug portion or switch to another medigap policy. The government subsidizes Part D, so you should get more drug coverage at a lower cost. Also, medigap drug plans aren't considered "creditable coverage." If you change your drug coverage after the Part D deadline, you'd be subject to the penalty.
  
  

  Dropping prescription drug coverage in H, I or J plans would reduce your premiums by as much as $80 to $110 per month, says Jim Pogue, president of Insurance Solutions for UnitedHealth Group, one of the largest medigap companies.

Another option: Take another look at medicare HMOs (Medicare Advantage) plans. After years of leaving the business and raising premiums, many medicare HMOs are now expanding their business and lowering their costs, thanks to more money from the government.

On the flip side, if you currently have a medicare HMO primarily for the drug benefits, you now have more options. For example, you could sign up for a standalone Part D plan and supplement it with another medigap policy.

What if I don't like my insurer? Can I switch plans?

Yes, you'll be able to change your plan once a year.

What should I look for in a Part D policy?
People in many regions will have more than 20 plans to choose from. Compare plans based on premiums and coverage. Some key questions to ask:

• Are the drugs I use covered?

• If the plan charges different amounts for different drugs (often three tiers of prices), which tiers are my drugs in? Consider meeting with your pharmacist or doctor to review your medications and see if you can switch to drugs that are less expensive under the plans you're considering.

• Am I willing to pay extra to use a wider range of drugs at a level price?

• What are my drug costs? Do you have few drug costs and want the lowest premium, or do you have more-expensive drugs and want to pay extra to fill the coverage gaps?

• Is my local pharmacist covered by the plan?

• Can I save money by working with a mail-order pharmacy?

• Will my coverage change when I'm traveling or at my second home?

• Does the company have a good customer service record?

Where can I find more help?
With the complexity of these plans and the huge number of people affected, a slew of organizations are preparing to help.

The best resource to compare specific plans in your area will be Medicare.gov, which will enable you to do a personalized search based on many of the criteria above (the search tool should be available in mid-October). You'll also receive a list of the plans available in your area in your Medicare & You handbook, which you should be receiving soon. If you want more personalized help, contact your local State Health Insurance Program, which can provide personalized help. AARP and the Medicare Rights Center have a lot of helpful information. And many pharmacists, nursing home administrators and others on the front lines of dealing with seniors are being trained to help answer questions.

Also, low-income seniors can get a subsidy to help cover their costs. Visit the Social Security Administration Web site or call 800-772-1213 for more information and an aid application. The Access to Benefits Coalition also has a lot of helpful resources.

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