Delaying sign-up for drugs adds cost

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Thinking about skipping the initial sign-up period for the new Medicare prescription drug benefit?

It will cost you if you do.

Medicare-eligible seniors who do not sign up for the new prescription drug benefit coming on line in 2006 will face penalties of 1 percent a month, or 12 percent a year.

Since the premiums run $32 a month on average, seniors who do not sign up during the period that begins Tuesday and ends May 15 will be penalized 32 cents a month for the first year.

But because the penalty is cumulative, it could cost seniors about $4 extra each year they wait, and at least $18 a month more if they wait until four years from now, and that's only if the premiums don't go up.

There is no guarantee that the average premium will remain at $32 given pharmaceutical costs that have risen at twice the rate of inflation or more in some recent years. Thus, the base on which the 1 percent monthly penalty is fixed certainly could rise.

Not everyone will face a penalty. For example, Medicare beneficiaries who have drug coverage through another source, such as retiree coverage through their former employer or a union retirement plan, are not penalized if they decide later they want to join Medicare's drug coverage.

Still, the penalty is one of the more controversial features that seniors don't like about the new drug benefit being added to Medicare, especially given the unease many have about the new program.

Congress and the Bush administration built in a financial penalty for seniors who decide against signing up early for Medicare's new Part D drug coverage, saying the program needs to enroll healthy and sick seniors if it is going to work.

It's one way to control costs in the single biggest expansion of the federal health insurance program for nearly 42 million elderly since Medicare was created four decades ago.

Seniors who skip the initial open enrollment period and wait four years before signing up may end up paying almost 50 percent more for the rest of their lives.

Health insurance companies need a large, diverse group of seniors enrolled to spread their costs across a large number of beneficiaries and turn a profit.

"The penalty works like any other insurance policy," says Peter Ashkenaz, spokesman for the Centers for Medicare and Medicaid Services in Washington. "If you don't take advantage of the insurance policy when it becomes available, you may have a higher premium. It's like life insurance."

Members of Congress, too, say the penalty is fair, and not much different than a 10 percent annual penalty for eligible beneficiaries who do not sign up for Medicare Part B, a basic Medicare benefit that helps cover certain physician services and outpatient expenses. The 2005 Medicare Part B premium is $78.20.

Standard Medicare coverage also includes Medicare Part A, the hospital coverage portion, for which seniors pay no costs other than certain deductibles.

"The penalty is a fair thing for everybody, and we already have it in [the existing] Medicare," said Rep. Pete Stark (D-Calif.), who opposed the overall Medicare drug benefit bill passed by Congress.

"I don't have any quarrel with the penalty. The penalty is a fair thing to do to keep the program economically viable."

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bjapsen@tribune.com

Coming up

Find out whether your drug is going to be covered, how the prices you pay will be affected, and what plans are operating in the Chicago area as the Tribune helps you understand the changes in Medicare.

READER CONNECTION

Would you like to learn more about the coming 2006 Medicare drug benefit? Find Tribune stories online at chicagotribune.com/medicaredrugs.

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