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Your Bank > Education and Advice

Medicare Information

 The New Medicare Drug Benefit

January 2006
James Terwilliger

In January 2006, Medicare began to offer prescription drug coverage for the first time in its 40-year history. The coverage, called Medicare Part D, is voluntary and is available to all people covered by Medicare, regardless of income level and resources, pre-existing conditions, or current prescription expenses.

Open enrollment for 2006 Part D coverage began last November and runs through May 15. Coverage begins at the beginning of the month following enrollment. Premiums can range from about $2 to as high as $100 per month in 2006, depending on plan features. Most plans are in the $30/month range.

The cost for Part D is in addition to the regular Medicare Part B premium which is $88.50/month in 2006. Both Part B and Part D premiums are indexed for healthcare inflation annually.

Medicare Part D insurance is provided by private companies. According to the Centers for Medicare and Medicaid Services (CMS), eight insurance companies offer coverage nationwide, while other insurers offer coverage regionally. Beneficiaries have at least 11 plans to choose from and those in larger states, such as New York, have a choice of close to 50 plans.

The plans offered by CMS-approved companies differ in terms of cost and coverage, so it's important that you comparison shop. For example, each Part D drug plan has a government-approved list of drugs it covers, often called a formulary or preferred-drug list. But the formulary varies from plan to plan, so you should compare plan formularies to see which one fits your needs best.

Another difference might be which pharmacies you can use. If you join a Part D plan and you use the plan's network of pharmacies, you will likely receive discounted prices on both brand name and generic prescription drugs.

You can receive Medicare drug prescription coverage two ways:1) The most simple is the Part D prescription drug benefit plan, which covers only drugs and can be used in conjunction with your traditional Medicare Parts A and B and Medicare supplement plan. The supplement plan or "Medigap" coverage will no longer include a drug benefit. 2) The other type combines a prescription drug plan with a Medicare Advantage plan which includes medical coverage for doctor visits - such as an HMO or PPO.

If you already have drug coverage through a retiree plan or other Medicare Advantage Plan, Medicare helps subsidize its cost, and there may be no need to apply separately for Part D. Enrolling in Part D unnecessarily may make you ineligible to continue with your current Medicare Advantage plan. Be sure to check with your current provider.

Standard Part D out-of-pocket costs work as follows - In 2006, you pay:

* the first $250 in prescription expenses (the deductible)
* 25% of the costs between $250 and $2,250 ($500 maximum)
* all of the costs between $2,250 and $5,100 - the so-called "donut hole" ($2,850 maximum)
* 5% of the costs exceeding $5,100

Some of the higher-premium Part D plans feature reduced out-of-pocket costs compared to the above schedule.

If you are a Medicare participant and don't sign up for Part D by May 15, you may have to pay a penalty unless you are already participating in a "creditable" Medicare Advantage plan that is as good as or better than the new Part D plan. If that plan terminates, you have 63 days in which to enroll in Part D to avoid the penalty later on. The late enrollment penalty is one percent of your premium for each month you delay, and you'll pay it for as long as you are participating in a Part D program.

After this May 15, the general enrollment period will be November 15 through December 31 of each year for coverage effective January 1st of the following year. This annual enrollment window offers the opportunity to change your existing plan, if desired.

You can learn more about these major changes at: www.AARP.org; www.Medicare.gov; www.SocialSecurity.gov; www.KFF.org; www.shiptalk.org; www.Medicareinteractive.org; and www.benefitscheckup.org. Or, call 1-800-MEDICARE (1-800-633-4227).

Unsure about what you should do? Time is running out. Here are some suggestions if you are receiving Medicare benefits or will be shortly:

1. If you currently have prescription drug benefits, talk to your insurer. Find out if you do or do not need to sign up for Medicare Part D. If no, you are all set. If yes, find out what plans the insurer offers and what the premium costs are. Pay particular attention to the drugs and pharmacies covered.
2. Talk to your pharmacist and get a list of your current prescription drugs and dosages. Ask your pharmacist for his/her Part D recommendations.
3. Talk to your physician to determine if you are likely to need a change in your prescriptions.
4. If your needs will not be met by plans offered by your current insurer, seek out alternative insurers.
5. Based on the above, make an informed decision that is best for you. Get help from your medical and financial advisors and/or your family. Purchasing Medicare Part D is as much a financial decision as it is a health-care decision.

James Terwilliger, CERTIFIED FINANCIAL PLANNER™, is Vice President, Financial Planning, Wealth Strategies Group, Canandaigua National Bank & Trust Company. He can be reached at 585-419-0670-50630 or by email at jterwilliger@cnbank.com. This article previously appeared in Business Strategies Magazine.
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