Stuck in the Middle: Modernizing Medicare

by Joel Dresang

For all the confusion and controversy they've generated, historic changes to Medicare aren't expected to do much for middle-income people.

Still, experts advise everyone eligible for the federal insurance plan for Americans 65 and older to keep up with what's going on. This is not a case where ignorance is bliss.

At the heart of the Medicare Modernization Act of 2003 is the addition of prescription drug benefits. The voluntary pharmaceutical coverage takes full effect in 2006, but a transitional drug discount card program that began in June 2004 has stirred widespread commotion, questions, and complaints.

The drug plan represents only about 180 pages of the nearly 700-page Medicare update. Other, less talked-about provisions in the new law include:

Preventive benefits. Intended to detect health troubles early, beginning in 2005, Medicare will cover an initial physical examination, diabetes screening tests, and blood tests for heart diseases.
Coordinated care. For Medicare participants with certain chronic illnesses, the program will offer better management of care to help prevent costly complications.
Higher premiums. For the first time, the monthly fee for Medicare Part B--which includes doctor visits and outpatient services--will be based on a participant's income. Currently, everyone who elects Part B coverage when they're first eligible pays 25% of the premium cost, about $67 a month in 2004. Phased in between 2007 and 2011, participants with annual incomes exceeding $80,000 ($160,000 for couples) will pay between 35% and 80% of the premium.
Higher deductibles. The amount that Part B beneficiaries have to spend of their own money before coverage kicks in has been set at $100 since 1991, but it goes up to $110 in 2005. After that, it will rise with the growth in Part B spending.
Sixty-eight percent of seniors surveyed weren't aware of Medicare changes.
Employer incentives. Congress aims to provide $88 billion in tax-free subsidies beginning in 2006 to help employers afford continued drug coverage for their retirees.

"Thin gruel"

Medicare, created in 1965 to help older Americans and people with permanent disabilities, remains particularly helpful for low-income citizens, says Bill Vaughan, director of government affairs for Families USA, a consumer advocacy group based in Washington, D.C.

"For middle-class folks, it's a safety net," Vaughan says of Medicare. For those people, unless they require lots of medications, he calls the changes to Medicare "thin gruel."

Additional coverage for preventive and coordinated care broadly benefits most of Medicare's 41 million participants, but Vaughan and others bemoan the increasing fees and deductibles, and they contend that the drug plan doesn't go far enough.

"Basically, we believe it doesn't help middle-income people," says Dianna Porter, policy director at the Alliance for Retired Americans, an activist organization with three million members, based in Washington, D.C.

Rising pharmacy bills

Medicare needed drug benefits because of runaway pharmaceutical costs. Americans' out-of-pocket spending on medications soared more than 400% between 1970 and 1997, according to the federal Health Care Financing Administration. The average Medicare participant spent $1,610 for prescription drugs in 2000, according to the Kaiser Family Foundation, of Washington, D.C. That rose to $2,322 in 2003 and is projected to reach $3,160 in 2006.

Essentially, the new Medicare drug plan is supposed to pick up about three-fourths of the prescription bills of those who enroll. For the poorest participants, Medicare offers additional assistance to help cover deductibles and premiums. The monthly fee is expected to average about $35--more for those who don't sign up as soon as they're eligible.

Between 1970 and 1997, spending on prescriptions shot up more than 400%.

"We're telling people to go in with low expectations," Vaughan says. "Every trip to the drugstore will still be an adventure."

The new drug coverage appears to be a good deal for Medicare participants with incomes below 135% of poverty ($12,569 for a single person and $16,862 for married couples in 2004), Vaughan says. "Above that, it is pretty disappointing."

Even AARP, which generally has been a supporter of the Medicare changes, says the value is greater for low-income individuals.

"We think that the benefits are going to save people money. But for middle-income people, they're going to have to do some math on this," says Steve Hahn, a spokesman for AARP, which is based in Washington, D.C., and has more than 35 million members.

Essentially, if you use a lot of medications, your savings would be greater, Hahn says. If you're relatively healthy now, the benefits are less. Several Web sites, including AARP's, offer details, work sheets, and calculators to help participants personalize the Medicare changes.

Confusion, low awareness

Under its drug plan, Medicare would pay 75% of the pharmacy bill for the first $2,000 a beneficiary spends after a $250 annual deductible. Those who sign up for the plan would pay the full cost between $2,250 and $5,100 in claims. After $5,100, Medicare would cover about 95% of the bills.

If it seems complicated, it is.

"It's such a many-headed beast that it's going to be inevitable that people will be confused," Porter says. "Even those of us who are policy wonks about this, we can't understand it yet," admits Porter, who has a law degree on top of about 30 years of experience in gerontology--the comprehensive study of aging and the problems of the aged.

Every trip to the drugstore will be an adventure.

In a survey by the Kaiser Family Foundation, 60% of Americans age 65 and older said they didn't understand Medicare's new drug provisions. Months after Congress changed the benefits and President Bush had signed them, 68% of the seniors surveyed said they weren't even aware of the law. Of those who were, 73% said they had an unfavorable impression of it.

"There is obviously a huge need for seniors to have more information," Mollyann Brodie, vice president and director of public opinion and media research for the foundation, said in releasing the survey.

For its part, the U.S. Department of Health and Human Services, which runs Medicare, has geared up to assist an anticipated 13 million callers with questions about the Medicare drug plan. The department reportedly will spend more than $22 million on advertisements and educational brochures to inform potential beneficiaries.