Beginning in 2006, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003; Public Law 108-173 (Medicare Act of 2003) adds a Part D to the Medicare program. Under Part D, beneficiaries will be able to access limited prescription drug benefits by contracting with private health plans. Beneficiaries will be subject to formulary restrictions and will be required to pay substantial costs out-of-pocket, including premiums, a deductible, co-insurance, and all costs incurred within a "doughnut hole," as well as the entire costs of drugs not included on their planís formulary.

Beneficiary costs under Part D are listed below. Note that a beneficiaryís total out-of-pocket expenses may exceed the amounts listed, because costs associated with drugs not covered by the beneficiaryís drug planís formulary will not be credited towards drug expense limits or out-of-pocket spending requirements. Overall, the value of the drug benefit will vary from beneficiary to beneficiary depending on the amount they spend on drugs and whether or not all the drugs they take are on their planís formulary.

Beneficiary costs are broken down as follows:

Premiums: Estimated to be $35.00 per month. Annual cost will be at least $420 (12 x $35).

Deductible: Annual cost $250.00 in 2006.

Initial Cost Sharing: 25% until drug expenses incurred reach $2250.00. The deductible counts toward this $2250 limit but plan premiums do not. The total annual initial cost sharing is $500.00 ( [$2250 - $250 deductible] ◊ 25% = $500.00) At this point, the beneficiary has incurred $750.00 in expenses for covered drugs (plus premiums) to receive $2250.00 in benefits.

Doughnut Hole: Once a beneficiary reaches this initial coverage limit, benefits stop until the beneficiary pays another $2850 for covered drugs completely out-of-pocket, for a total of $3600 out-of-pocket ($2850 + $250 deductible + $500 initial cost sharing). This gap in coverage is commonly referred to as the "doughnut hole."

This $3600 in out-of-pocket expenses represents $5100 in total expenses for covered drugs ($2250 in total expenses up to beginning of the "doughnut hole" gap in coverage + $2850 in beneficiary liability [actual out-of-pocket payments] for covered drugs during the "doughnut hole" gap).

Catastrophic Coverage: Once a beneficiary reaches the end of the "doughnut hole" ($3600 in out-of-pocket expenses), s/he will pay either of 5% of the cost of a covered drug, or $2 per generic drug and $5 per brand-name drug, whichever is greater, for the rest of the year. Again, beneficiaries will bear the full cost for any drugs not on their planís formulary.

Note: Premiums, deductibles and the doughnut hole will be "indexed," which means they will potentially increase each year.

© Center for Medicare Advocacy, Inc.