Local Columns - Senior Lines
More on the Medicare Prescription Drug Plan
By Rose Safran
A friend called to thank me for the "Senior Lines" feature I wrote concerning the confusion, limitations and complicated aspects of Medicare Part D, also known as the Medicare Prescription Drug Plan. Then, she asked me to do the arithmetic for her. I did. My editor subsequently asked me to tackle the details on paper. Here goes.Let's assume that the Medicare Part D insurance plan in which Alice - we'll call our hypothetical senior "Alice" - has enrolled has no deductible. In other words, the drugs that Alice, a middle-income woman, buys are immediately applied and covered, provided they are among the drugs the plan she purchased says it will cover and not specialty drugs for which she may have to obtain permission. The drugs she uses fall into two of the three different price categories: Tier 1; Tier 2; Tier 3. Alice has a booklet listing drugs and their respective tier categories, but hasn't the time and/or inclination to refer to it and leaves it up to the pharmacist when he fills her prescriptions.
Alice needs two prescription drugs regularly, which she obtains on a monthly basis. Drug A is billed at $200 a month, but, to make our arithmetic simple, let's say Alice pays only $25 for it under her particular plan. (Note: insurance plans vary considerably.) Drug B is also billed at $200 a month, but Alice pays $50 for this drug. In other words, Alice's required prescription drugs, retail at $200 plus $200, equal to $400 per month, although Alice pays only $75 per month under her plan. (This is very hypothetical as well as over-simplified.) In six months, Alice's drugs will cost $400 multiplied by 6, or $2,400 total, placing her in the "donut hole" which begins at $2,400 in 2007.
Because she has reached the "donut hole" Alice now has to pay 100 percent, that is, $400 a month out-of-pocket for her regular prescription drugs. In addition, let's say Alice had a bacterial infection, requiring an antibiotic, which costs her another $100. Alice is under the illusion that when the total drug bill equals $3,850, she will be able to get some relief from her hefty monthly payments. Note the word "illusion."
The pharmaceutical and insurance companies got Alice into the donut hole rather quickly by requiring a total of the amounts she paid and the amounts her insurance plan paid for the covered drugs. In other words, the parameters used reflected the total retail cost of the drugs and not Alice's out-of-pocket. However, now that she is in that donut hole, they would prefer that she stay there as long as possible, paying 100 percent of the charges. So the parameters change. Only Alice's actual out-of-pocket expenses for her prescription drugs qualify for the $3,850 base after which she will again get some relief through the weird tier-pricing system. (Note: she will still have expenses.)
For the second half of the year, Alice will have paid out-of-pocket $2,400, plus the extra $100 for the antibiotic, which equals $2,500. However, for the first half of the year, Alice paid only $75 for six months for her prescriptions, which totals $450. Alice's true out-of-pocket costs are $2,500 for the second half of the year plus $450 for the first half of the year, which equals $2,950.
Alice will remain in the donut hole for the year unless something happens or had happened, that is, if she needed prescription medications causing her to spend an additional $900 out -of-pocket, as $2,950 plus $900 equals the $3,850 threshold for her drugs.
Alice pays a premium for her Medicare Part D insurance that has not been factored in - she pays $400 a year for it. Alice's total prescription drug expense for the year is $2,950 plus $400 which equals $3350. (Alice's real out-of-pocket drug expenses are higher because she also buys non-prescription drugs not included here, many of which are escalating in price. And, as drugs come off prescription, as so many do over the years, they will not qualify for coverage under the plan.)
Let's look at the figures another way. Up to the $2,400 "donut hole" Alice was happy. She was paying $75 per month for drugs billed at $400, saving $325 a month. The total cost of her drugs for the year was $4,800 plus the $100, equaling $4,900. The difference between $4,900 and her payment of $2,950 is $1,950, which is her savings. But Alice has paid $400 in insurance to get that $1,950. Her true saving is $1,950 minus $400, which equals $1,350. Yes, that is a savings.
However, Alice is not Mr. and Mrs. Everyone. Alice represents a highly simplified senior case with artificial figures - a senior with consistent charges who didn't have many medical surprises during the year requiring paying an additional $900 for prescription drugs while in the donut hole, as well as someone who picked a carrier with a modest premium, subject to increase, of course, now that she is enrolled. That $900, subtracted from Alice's assumed $1,950 saving would result in $1,050 in gross savings or $650 in net savings when the $400 cost for insurance is factored in.
Many seniors have no way to anticipate drug needs or costs or tier levels for prescribed drugs. Also, while Alice's insurance appears to run around a one-third ratio of cost to benefit as roughly calculated here, other seniors can wind up with a considerably higher proportion. Imagine paying 50 cents to insure one dollar.
The conclusion: the Medicare Part D program generally seems to benefit two groups of middle-income people (poverty level seniors have other options) - those with catastrophic prescription drug needs and those with minimal prescription drug needs. However, there are no pharmaceutical company pricing controls and no insurance carrier rate controls for annual premiums. Alice's modest saving could, possibly, be wiped out by potential increases in such costs.
And all this says nothing about the variety of different plans available, enhanced plans, etc., which seniors have been invited to study - some, I'm told, offer coverage for the donut hole, but at greatly increased premiums - and the waste in time and paperwork involved for this convoluted insurance plan.
