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Year 2002 Legislative Prescription Drug Proposals

Sat, 05/04/2002 - 11:00pm — Karen Stevenson
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Both Democrats and Republicans have come up with proposals to provide coverage for prescription drugs for Medicare Beneficiaries. Details are sketchy, but I have tried to analyze the impact of each proposal on beneficiaries.

The Republican proposal as currently configured would favor those with annual drug costs of $1,500-$6,000 per year, and the Democratic proposal benefits those with costs over $6,000, or costs from $600-$1,500 per year. Neither proposal would benefit those with drug costs below $600 per year, since they would pay more in premiums than they would gain in coverage. Both plans would provide free coverage for low income people (at least those below 135% of the Federal Poverty Level, so I have ignored them in this calculation. Note, however, that the Republican plan would be an administrative nightmare because it has five (5!!) different benefits levels to consider.

I have used the following assumptions. Few details have been finalized or published, but these seem to be the basic parameters now being considered:

Democratic Proposal

Republican Proposal

Annual Premium:
$25/month ($300/year)		 Annual Premium:
$37/month ($444/year)
Deductible:
None		 Deductible:
$250/year
Coverage:
50% of all costs up to a total out-of-pocket cost of $4,000/year, and 100% coverage thereafter.		 Coverage:
75% of all costs over the deductible until total out-of-pocket costs equal $1,000/year, $50% of all costs after that until total out-of-pocket costs equal $2,000/year, 0% of the next $3,000 in costs, for a total out-of-pocket cost cap of $5,000, 100% thereafter.

Beneficiary's Annual Drug Cost Out-of-Pocket Costs* Net Benefit** Diff. Best Plan for Beneficiary:
Rep. Plan Dem. Plan Rep. Plan Dem. Plan
$500 757 550 (257) (50) (207) Neither
$1,000 882 800 118 200 (82) Democratic
$1,500 1,007 1,050 493 450 43 Republican
$2,000 1,132 1,300 868 700 168 Republican
$2,500 1,257 1,550 1,243 950 293 Republican
$3,000 1,382 1,800 1,618 1,200 418 Republican
$3,500 1,569 2,050 1,931 1,450 481 Republican
$4,000 1,819 2,300 2,181 1,700 481 Republican
$4,500 2,069 2,550 2,431 1,950 481 Republican
$5,000 2,319 2,800 2,681 2,200 481 Republican
$5,500 2,694 3,050 2,806 2,450 356 Republican
$6,000 3,194 3,300 2,806 2,700 106 Republican
$6,500 3,694 3,550 2,806 2,950 (144) Democratic
$7,000 4,194 3,800 2,806 3,200 (394) Democratic
$7,500 4,694 4,050 2,806 3,450 (644) Democratic
$8,000 5,194 4,300 2,806 3,700 (894) Democratic
$8,500 5,444 4,300 3,056 4,200 (1,144) Democratic
$9,000 5,444 4,300 3,556 4,700 (1,144) Democratic
$9,500 5,444 4,300 4,056 5,200 (1,144) Democratic
$10,000 5,444 4,300 4,556 5,700 (1,144) Democratic

* Out-of-pocket costs include premiums
** Net benefit is total cost of drugs less the out-of-pocket costs of plan

NOTE: I urge the Republicans to PLEASE PLEASE PLEASE simplify their proposal. I am a CPA and still spent several hours trying to figure out what the cost/benefit would be for people with various levels of drug costs. There are five (5!!) different payment levels in the Republican plan, making it very complicated to calculate the relationship between the total drug costs and the actual out-of-pocket expense. Everyone involved will need to know the total year-to-date drug expense and the accumulated out-of-pocket cost at the time of every drug purchase in order to know what the beneficiary must pay as their share of the prescription cost. In addition to being difficult for beneficiaries to understand, this plan would be an administrative nightmare!!

Republican Proposal Benefit Levels

Plan PaysFor Costs From/ToBeneficiary Out-of-Pocket
0%Up to $250Up to $250/year
75%$251-$3,250Up to $750/year
50%$3,251-$5,250Up to $1,000/year
0%$5,251-$8,250Up to $3,000/year
100%Over $8,250Nothing
MAXIMUM OUT-OF-POCKET: $5,000

Both Democrats and Republicans have come up with proposals to provide coverage for prescription drugs for Medicare Beneficiaries. Details are sketchy, but I have tried to analyze the impact of each proposal on beneficiaries.

The Republican proposal as currently configured would favor those with annual drug costs of $1,500-$6,000 per year, and the Democratic proposal benefits those with costs over $6,000, or costs from $600-$1,500 per year. Neither proposal would benefit those with drug costs below $600 per year, since they would pay more in premiums than they would gain in coverage. Both plans would provide free coverage for low income people (at least those below 135% of the Federal Poverty Level, so I have ignored them in this calculation. Note, however, that the Republican plan would be an administrative nightmare because it has five (5!!) different benefits levels to consider.

I have used the following assumptions. Few details have been finalized or published, but these seem to be the basic parameters now being considered:

Democratic Proposal

Republican Proposal

Annual Premium:
$25/month ($300/year)		 Annual Premium:
$37/month ($444/year)
Deductible:
None		 Deductible:
$250/year
Coverage:
50% of all costs up to a total out-of-pocket cost of $4,000/year, and 100% coverage thereafter.		 Coverage:
75% of all costs over the deductible until total out-of-pocket costs equal $1,000/year, $50% of all costs after that until total out-of-pocket costs equal $2,000/year, 0% of the next $3,000 in costs, for a total out-of-pocket cost cap of $5,000, 100% thereafter.

Beneficiary's Annual Drug Cost Out-of-Pocket Costs* Net Benefit** Diff. Best Plan for Beneficiary:
Rep. Plan Dem. Plan Rep. Plan Dem. Plan
$500 757 550 (257) (50) (207) Neither
$1,000 882 800 118 200 (82) Democratic
$1,500 1,007 1,050 493 450 43 Republican
$2,000 1,132 1,300 868 700 168 Republican
$2,500 1,257 1,550 1,243 950 293 Republican
$3,000 1,382 1,800 1,618 1,200 418 Republican
$3,500 1,569 2,050 1,931 1,450 481 Republican
$4,000 1,819 2,300 2,181 1,700 481 Republican
$4,500 2,069 2,550 2,431 1,950 481 Republican
$5,000 2,319 2,800 2,681 2,200 481 Republican
$5,500 2,694 3,050 2,806 2,450 356 Republican
$6,000 3,194 3,300 2,806 2,700 106 Republican
$6,500 3,694 3,550 2,806 2,950 (144) Democratic
$7,000 4,194 3,800 2,806 3,200 (394) Democratic
$7,500 4,694 4,050 2,806 3,450 (644) Democratic
$8,000 5,194 4,300 2,806 3,700 (894) Democratic
$8,500 5,444 4,300 3,056 4,200 (1,144) Democratic
$9,000 5,444 4,300 3,556 4,700 (1,144) Democratic
$9,500 5,444 4,300 4,056 5,200 (1,144) Democratic
$10,000 5,444 4,300 4,556 5,700 (1,144) Democratic

* Out-of-pocket costs include premiums
** Net benefit is total cost of drugs less the out-of-pocket costs of plan

NOTE: I urge the Republicans to PLEASE PLEASE PLEASE simplify their proposal. I am a CPA and still spent several hours trying to figure out what the cost/benefit would be for people with various levels of drug costs. There are five (5!!) different payment levels in the Republican plan, making it very complicated to calculate the relationship between the total drug costs and the actual out-of-pocket expense. Everyone involved will need to know the total year-to-date drug expense and the accumulated out-of-pocket cost at the time of every drug purchase in order to know what the beneficiary must pay as their share of the prescription cost. In addition to being difficult for beneficiaries to understand, this plan would be an administrative nightmare!!

Republican Proposal Benefit Levels

Plan PaysFor Costs From/ToBeneficiary Out-of-Pocket
0%Up to $250Up to $250/year
75%$251-$3,250Up to $750/year
50%$3,251-$5,250Up to $1,000/year
0%$5,251-$8,250Up to $3,000/year
100%Over $8,250Nothing
MAXIMUM OUT-OF-POCKET: $5,000
Link: 
DEMOCRATIC FACT SHEET The Medicare Outpatient Prescription Drug Act of 2002 -
Act 1230: Assisted Living Act (PDF) -