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What You Need to Know About the Medicare Prescription Drug Act

Congress passed the legislation. Now physicians must learn the details .

Jennifer Brinckerhoff, MD, and Eric A. Coleman, MD, MPH

Fam Pract Manag.  2005 Mar;12(3):49-52.

This content conforms to AAFP CME criteria. See FPM CME Quiz.

Many older Americans cannot afford to follow their doctors’ advice when it comes to prescription drugs. Their medications are simply too expensive, often leaving their health needs unmet. Physicians experience similar frustrations with the high cost of medications, as they must choose between practicing evidence-based medicine and considering what is practical for their patients. In a system where physicians wield little control over health care costs, the struggle continues.

The national debate over a prescription drug benefit should come as no surprise to most Americans. Spending on prescription drugs in the United States grew twice as fast as total national health expenditures between 1990 and 2000. In 2002, total outpatient drug costs for adults over 65 were estimated at $87 billion, and they will rise to over $120 billion by 2005.1 The number of Medicare beneficiaries will continue to increase as the baby boomers become eligible for coverage, from 41 million in 2000 to 77 million by 2030.2 And while the elderly constitute only about 15 percent of the U.S. population, they account for 40 percent of the country’s prescription drug costs.1

In an attempt to relieve patients of some of the financial burden of prescription drugs, the government has enacted a law that provides new prescription drug coverage under Medicare: the Medicare Prescription Drug, Improvement and Modernization Act (MMA) of 2003. (Complete details of the legislation can be found online by visiting the Library of Congress’ legislative information Web site at .) Patients hope this law will help them better afford their medications, and they will expect their physicians to understand the law and explain how it will influence their treatment plans. To provide effective care, physicians need to be prepared to respond to patients’ inquiries and they also need to understand the practical details of the legislation.


Medicare discount drug cards can save patients 10 to 15 percent on their prescription drugs.

Patients who meet their initial out-of-pocket costs are covered for 75 percent of their medication expenses, up to $2,250.

The cost of the law is estimated to surpass $700 billion, pushing prescription drug coverage to the forefront of Medicare reforms.

A bit of background

Retiree health plans and Medicare+Choice plans have been major sources of prescription drug coverage, but these benefits have been scaled back over the past five to 10 years in response to higher drug costs, leaving 25 percent of Medicare beneficiaries without any drug coverage.1 A large-scale national response to this problem is appropriate; however, it will take time to change such a large and cumbersome system.

To provide some immediate relief from

high drug costs, the legislation has arranged for discount drug cards that will bridge the gap until the full drug benefit commences. These cards are currently available to those with Medicare Part A and/or Part B coverage, as long as the patients are not currently receiving prescription drugs through the Medicaid program. Through the various new drug discount programs that offer discount cards, patients can receive approximately 10- to 15-percent reductions in the price of their medications. Some beneficiaries may also qualify for a $600 credit toward medications each year if their income is less than 135 percent of the federally defined poverty level.3 Each discount program has an enrollment fee that can be no more than $30 per year.

Several restrictions accompany the discount cards. For example, the discount programs may change their formularies at any time, the beneficiary can use only one discount card or program at a time and a wait time of one calendar year is required before switching programs. There are pharmacy restrictions as well, and it is up to Medicare beneficiaries to compare plans and decide which drug discount card is right for them. Medicare offers a Web site ( ) and a toll free number (1–800-MEDICARE) for beneficiaries who need assistance in making these decisions.

What does it all mean?

The legislation has added a voluntary drug benefit to Medicare, covering all drugs, biologic products, insulin, some vaccines and medical supplies. The scheduled deadline for implementation of this benefit is currently set for Jan. 1, 2006. The list of covered items mirrors the stipulations set out by the Medicaid program and leaves room to exclude any other stipulations that do not meet the Medicare definition of “reasonable and necessary.” (See “Breaking down the prescription drug coverage for Medicare beneficiaries” for more information.)

The benefit will include an annual premium of $420 ($35 per month) and an annual deductible of $250. Medicare beneficiaries pay 25 percent of all prescription drug costs, with the Medicare program making up the difference, until total drug expenditures reach $2,250. Beneficiaries who spend more than $2,250 fall into the “donut hole” and are responsible for 100 percent of prescription drug costs (i.e. Medicare pays nothing) until they reach the next threshold of $5,100. Once this second limit is reached, the beneficiary is responsible for 5 percent of the drug expenditures and the Medicare program will cover the remaining 95 percent. (See “Patients’ out-of-pocket costs.” )

Beneficiaries can elect to receive all of their covered services, including the new prescription drug coverage, through an HMO or a PPO under Medicare Advantage (the new name for the Medicare+Choice managed care program). All beneficiaries are guaranteed to have at least two qualifying plans to choose from in their area of residence. These private plans would also be responsible for negotiating prices with drug manufacturers and developing formularies.

Category: Insurance

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