Attention Federal Employees & Federal Retirees

Wednesday November 16, 2005

November 15, 2005 is the first day of the “open season” for those who decide to enroll in one of the private health insurance plans that will be providing prescription drug coverage under Medicare – known as Medicare Part D plans. For the most part, it is not advisable for federal retirees to sign up for a Medicare Part D plan if you are enrolled in a regular Medicare supplemental plan through the Federal Employees Health Benefits Program (FEHBP). Only in rare instances should a federal retiree with FEHBP coverage enroll in Medicare Part D.

Why not enroll in Medicare Part D? Because if you are already in FEHBP along with Medicare Parts A & B, you already have prescription drug coverage that is far better than what is in Medicare Part D. You would be paying twice for an inferior version of something you already have.

The “standard” Medicare Part D benefit for 2006 requires an initial $250 deductible on top of an annual average premium of $386.40 per year ($32.20/month). After you pay your $250 deductible, the Medicare Part D plan would kick in, paying just 75% of the cost of your first $2,000 worth of prescriptions. So at this point you are liable for $250 deductible + $386.40 premiums + $500, which is the 25% of the first $2,000 in Rx costs you incur. This adds up to $1,136. You have paid $1,136 for $1,500 worth of “benefits” at this point. But then you reach what people call the “Doughnut Hole” but should probably be called NO COVERAGE ZONE. Since you paid a $250 deductible, that amount is added to that first $2,000 so that the Doughnut/No Coverage Zone begins at $2,251.

From $2,251 in prescription drug charges to $5,100 in prescription drug charges, Medicare Part D plans pay nothing. Not a cent. This No Coverage Zone requires enrollees to pay 100% of their prescription drug charges until they have shelled out an additional $2,850 out of pocket. That is, after a person passes the $2,000 mark for Rx charges, he or she has to pay $2,850 of the next $2,850 of charges.

This is how one meets the “$3,600 out of pocket limit.” The initial $250 deductible + the next $500 copay + $2,850 Doughnut/No Coverage Zone = $3,600 out of pocket, not counting premiums. Only after you have paid a total of $3,600 per year apart from premiums does the next phase of benefits kick in. The next phase has the plan paying 95% of prescription charges, but even though they say that there is a $3,600 out of pocket limit, you still have to pay a 5%, co pay (or $2 generic/ $5 brand name), which ever is bigger – for any additional charges in a calendar year once you spend $3,600 out of pocket and reach catastrophic coverage. Medicare Part D calls these extra costs beyond the $3,600 out of pocket limit “catastrophic” coverage.

It is also important to remember that only certain expenditures count under Medicare Part D toward the $3,600“out of pocket limits.” Only payments that are deductibles and copayments for drugs onyour particular plan’s “formulary” (formulary = the drugs for which a particular plan is willing to reimburse enrollees) count. In addition, not only is there no consistency among plans, there can be inconsistencies within a particular plan. For example, different plans can have different copayments for different drugs e.g. they can charge higher copays on generics than brand name drugs. But in no case will you expenditures on “over the counter drugs” count, and premiums and payments for drugs not on your plan’s formulary don’t count. (For example, if you have an adverse reaction to the hypertension drugs on your plan’s formulary and need to take a different drug – but it isn’t on your plan’s formulary – you have to pay for it, and your payments do not count toward your out of pocket limit. Plans are only required to have two drugs in each therapeutic class).

You should also know that the numbers described here are for 2006 only. What starts on January 1, 2006 ends on December 31, 2006, and on January 1, 2007, everything starts all over again. Having met the $3,600 limit in 2006 won’t matter on January 1, 2007, even if you are in the middle of treatment for one illness, even if the 2007 expenditure is for a refill of something prescribed in 2006.

Premiums, annual deductibles, copayments, the size of the Doughnut Hole/No Coverage Zone, and the initial coverage limit will all go up each year according to increases in per capita Medicare Part D spending. In nine years, the size of the Doughnut Hole/No Coverage Zone is expected to be about $4,984. During the same period, monthly premiums are expected to rise to $64.26, the annual deductible will be up to $437, and the initial coverage limit which is $2,250 in 2006 is expected to climb to $3,934.

If you are a federal retiree and you do not have coverage under FEHBP, should you consider Medicare Part D?

The answer to that question depends in part on why you are not in FEHBP. If you have supplemental prescription drug coverage under a spouse’s plan, it will depend on how comprehensive that coverage is, and whether it is to be coordinated with Medicare Part D.

If you are a Medicare beneficiary with Medicaid drug coverage, you will be automatically be eligible for “low income assistance” for the costs associated with participation in Medicare Part D. If your income puts you below the poverty line ($9,570 for individuals and $12,830 for couples) you will automatically have Medicare Part D for no premium and no deductibles, although you will face some copayments, and it will replace your Medicaid drug coverage. For those with incomes between 135% and 150% of the poverty line ($12,920 to $14,355/individual and $17,321 to $19,245 couples plus assets worth less than $10,000 for individual/$20,000 for couples), there is a sliding scale of subsidies available for premiums and you will face a small deductible and 15% copayments up to $5,100 of drug charges.

The vast majority of federal retirees does continue to participate in FEHBP and thus should not consider the Medicare Part D coverage. Some federal retirees also have prescription drug coverage through the VA or TRICARE, or other sources. Every individual’s situation varies, so it is impossible to say whether each and every federal retiree should participate or not. The open season to choose a Medicare Part D plan begins Tuesday, November 15. The first day of coverage is January 1, 2006.

Because the new Medicare Part D program is so complicated, it is worthwhile to spend some time investigating your options before signing up. One good website is http://www.medicareadvocacy.org/. Another is the government’s own website http://www.cms.hhs.gov/. The Center for Medicare and Medicaid Statistics (CMS) has information on specific plans, the subsidies available for low income individuals and families, and a “calculator” to help you decide how much enrollment in a Medicare Part D plan will actually cost you. Finally, for “frequently asked questions” try http://questions.medicare.gov/. You can also call the AFGE Public Policy Department at 202-639-6408.

Related Documents AFL-CIO Resources on Medicare Prescription Drugs PDF (130 Kb) AFL-CIO Resources on Medicare RxDrug Benefit PDF (63 Kb)