Helping Those Who Need It Most:
Low Income Seniors and the New Medicare Law


Presented To

The United States Senate

Special Committee on Aging


Gail R. Wilensky, Ph.D.
Senior Fellow, Project HOPE

July 19, 2004

Mr. Chairman and members of the committee: Thank you for inviting me to appear before you. My name is Gail Wilensky. I am a senior fellow at Project HOPE, an international health education foundation. I am also a former Administrator of the Health Care Financing Administration (1990 to 1992), now called the Centers for Medicare and Medicaid Services or CMS and a former chair of the Medicare Payment Advisory Commission, or MedPAC, from 1997 to 2001. My testimony today reflects my personal views as an economist and health policy analyst and also my experiences as Administrator of HCFA and chair of MedPAC.

The purpose of my testimony is to review the ways is which the new Medicare Modernization Act (MMA) impacts the lowest income and most vulnerable populations, the reasons why these provisions are so important and the lessons that can be learned from the experiences thus far with the prescription drug discount program and earlier programs designed to assist the low income Medicare population. Much has already been written about what’s wrong with the new Medicare legislation. While there undoubtedly will be and should be modifications to the Medicare legislation, too little attention is being given to the impact the legislation will have the on the lowest income populations. It is also important that any changes occur after the full benefit has been implemented. As it is, it will take a Herculean effort on the part of CMS to implement the major provisions of the legislation in the time specified.

The Medicare Prescription Drug Discount Card

The Medicare prescription drug discount card began enrolling Medicare beneficiaries into the program in early May and began operations June 1. It is legislated to be in operation until December of 2005 and can best be thought of as a transition to the new Part D drug benefit of Medicare. According to CMS estimates, approximately 4 million people are now enrolled in the program.

The prescription drug discount card was established as a way of providing immediate assistance to beneficiaries, available to all but intended for those without other outpatient drug coverage. The main purpose of the drug discount card is to bring the advantages of group purchasing to seniors who have previously had to “buy retail” and thus lower the prices that they have to pay. Purchase of the drug discount card is voluntary, can cost no more than $30 per year and individuals may only purchase one Medicare-approved discount card

In addition to the discount card, a cash subsidy of $600 is available to low income seniors who have no other drug coverage. Low income for purposes of the cash subsidy is defined as being below 135% of the Federal poverty line, which is about $12,569 per year for a single person and about $16862 per year for a couple. These individuals also do not have to pay an enrollment fee.

There are some very important features about the cash subsidy that add to the value of the subsidy and also serve as important policy precedents. The most important feature is that low income individuals will receive the full $600 for 2004 even though the program only starts mid-year. Second to that in importance is the feature that allows individuals who do not spend the full $600 to roll-over any remaining funds to 2005. The roll-over provision of unused funds, if applied to the flexible spending accounts used by many employees, would fundamentally change the “use-it or lose-it” feature that characterize these accounts
While the cash assistance is an important subsidy to the low-income population, it does not provide for 100% coverage even within the first $600 of prescription drug spending. As part of a deliberate policy statement, the Congress decided that low-income seniors should pay something for their drugs, even for the first $600. Individuals with incomes below 100 % of the poverty line pay 5% of the cost, which means a maximum of $30. Individuals who are between 100% and 135% of the poverty line pay 10% of the cost or a maximum of $60.

Because the prescription drug cards and cash subsidies can also be used by beneficiaries who have access to state pharmaceutical assistance program and/or special discounts that the pharmaceutical manufacturers make available to those in need, the potential assistance available to the most vulnerable populations who are not Medicaid-eligible is larger than most realize. Medicaid coverage remains in place for those who on both programs, the so-called dual-eligibles, until 2006.