Prescription Plan Is Hard Pill to Swallow

In our nation’s capital, it’s not unusual to be asked by friends and relatives how legislation will affect them. These days, there are a lot of questions about prescription drug legislation for low-income seniors. And the truth is, people who really are spending their retirement funds for the medications they need are pretty clear about what makes sense--clearer sometimes than a lot of analysts in Washington.

So, we thought we’d create the “Aunt Mabel test.”

Simply put, we’d try to explain some of the prescription drug programs to someone who was over 65 and see if they got excited about how they would be helped. Since much is being written about a plan now being developed in the U.S. House of Representatives, we’re starting with the information that’s been made public. We are also using statistics from the Congressional Budget Office on how much medication Medicare-eligible seniors buy on an annual basis.

Here are talking points for our discussion with Aunt Mabel:

Good news, Aunt Mabel! Many members of the House of Representatives are supporting legislation that will give you a new Medicare prescription drug benefit in 2005. Yes, I know that’s two years away, but this is complicated stuff.

Under this plan, you will be able to choose a program that will cost you about $40 a month to participate. Yes, your math is correct: $480 a year.

For the first $250 you spend on prescription medication, this new plan will pay you exactly nothing. That’s right. If you need no more than $250 worth of medication, this plan will cost you $730 a year.

If you spend more than $250, something better happens: You pay only 20% of the cost of your medication up to $1,000. So if you have $1,000 in annual medication costs, you will have spent $480 to participate in the program, $250 on your first batch of medications and then $150 for the rest. In other words, what would have cost you $1,000 would, with this new plan, cost $880--a savings of $120.

For the next $1,000 in medication costs--up to $2,000--the program will pick up 50% of your costs, or $500. So, for $2,000 in coverage, you would spend $480 in premiums, $250 for your first batch of medications, $150 for the first $1,000 in costs and $500 for the next $1,000 in costs. In other words, for $2,000 in medication costs you would be spending $1,380--an annual savings of $620.

Now, what I need to know is what you think you might be spending on medication, because here’s the catch: An estimated one out of three Medicare beneficiaries spends less than $500 on medication every year.

If you are one of those, what would have cost you $500 will now cost you $780 ($480 for the plan, plus $250 for the first batch of drugs and then 20% of the next $250, or $50). Yes, you’d actually pay 56% more under the new plan than you would without it.

Maybe you really spend closer to $1,000 a year, as half of the Medicare population does. If so, you should feel a bit better. If your medications cost $1,000, you’ll spend $480 for the program, $250 for the first batch of drugs and then 20% of the cost of the next $750 or $150. This adds up to $880. You will have saved $120.

Now, Aunt Mabel, there is some bad news if you are among the 30% of the Medicare population that spends more than $2,000 a year for drugs. You see, under this plan, you’re on your own for every dollar you spend between $2,000 and $5,000. This plan won’t pay a cent.

Yes, I know you know the math. If you actually were to have $5,000 worth of prescription bills, you’d pay $480 for the program, $250 for the first round of drugs, 20% of the first $1,000, 50% of the next $1,000 and 100% of everything up to $5,000 for a total of $4,380--a mere 12% savings.

The real savings kick in for those of you on Medicare who spend the most on prescription drugs because the government would pay everything after the first $5,000. Of course, that’s meaningful to only about four out of every 100 of your friends on Medicare, because that’s how many actually spend that much.

Oh, and by the way, the program does not apply to all medications. For that matter, the discount your pharmacy already offers seniors may save you more. And you may need to change pharmacies since not all pharmacies may be able to offer you these “benefits.” But you don’t mind a little extra work, do you, Aunt Mabel?