Medicare Part D Voluntary Prescription Drug Benefit Program

On December 8, 2003, President Bush signed into law the "Medicare Prescription Drug, Improvement, and Modernization Act of 2003." A significant and much extolled element of this new law is the so-called "Voluntary Prescription Drug Benefit Program," a new Part D of Medicare. Though voluntary in name, beneficiaries may find that not electing the benefit may come at a significant price.

Part D Penalty

Despite being titled a "voluntary" program, Medicare beneficiaries who fail to sign up for the prescription drug benefit and who also fail to have alternative creditable prescription drug coverage for a period of 63 days or longer, will be subject to a financial penalty. Examples of alternative creditable prescription drug coverage include: Medicaid (title XIX or 1115 waiver); Group Health Plans; State Pharmaceutical Assistance Programs; Veterans’ Coverage of Prescription Drugs; Prescription Drug Coverage under Medigap Policies; and Military Coverage.

Amount of the Penalty

The amount of the penalty is largely a mystery. Per the new law, it will be the greater of: (1) an amount that the Secretary determines is actuarially sound for each uncovered month or (2) one percent of the base beneficiary premium. The base beneficiary premium, as defined in the law, is the beneficiary premium percentage plus the national average bid amount. It is precisely here that the law becomes impenetrable.

The beneficiary premium percentage is the following mathematical formula: 25.5%/100%-x% where x=The Above Average Bid for the year + the total payments which the Secretary estimates will be paid to prescription drug plans and MA-PD plans (Medicare Advantage programs that offer prescription drug plans) that are attributable to the standardized bid amount during the year, taking into account amounts paid by the Secretary and the enrollees. The national average bid amount is the monthly weighted average of the standardized bid amounts. The national average monthly bid amount will be a weighted average, with the weight for each plan being equal to the average number of Part D eligible individuals enrolled in such plan in the reference month. The standardized bid amounts are the approved bid amounts (approved presumably by the Secretary). And finally, the above average bid is defined as: if for a month the amount of the standardized bid amount exceeds the amount of the adjusted national average monthly bid amount, the base beneficiary premium for the month shall be increased by the amount of the excess.

One Silver Lining

Once the law takes effect, prescription plans that offer non-creditable prescription drug coverage will be required to alert Part D eligible individuals that their coverage is non-creditable and that there are limitations on the periods in the year in which individuals may enroll under a prescription drug plan or an MA-PD plan and that any such enrollment is subject to a late enrollment penalty.


Medicare beneficiaries without otherwise creditable prescription drug coverage who choose not to enroll in a voluntary prescription drug plan will take a risk. Should they later choose to enroll in a plan, they will face a penalty for each month spent out of a plan. The price associated with the penalty, however, is not made clear by the law.

© Copyright, Center for Medicare Advocacy, Inc.