WASHINGTON—As many as 2.4 million low-income people will miss out on generous savings when the Medicare prescription-drug benefit begins next year because they have too many personal assets.
Even though their incomes are low enough to qualify for coverage that pays 85 to 98 percent of their drug costs, millions of retirees won't get the benefit because the size of their bank and retirement accounts and other assets makes them ineligible for it.
Despite those assets, most of these people are far from wealthy.
A disproportionate share are older, widowed women with modest incomes who live alone, according to a study by the Kaiser Family Foundation. Nearly 60 percent of these women, and others who live alone, have life savings of no more than $51,500, the study found. For married couples, the figure is $63,000.
That's not a lot of money for retirement savings, said David Rice, a UCLA researcher who co-authored the Kaiser study.
The cutoff for eligibility in personal assets is $11,500 for individuals and $23,000 for married couples. Republican lawmakers added that restriction to the Medicare Modernization Act because they were under pressure to keep the drug benefit's 10-year price tag below the widely touted but erroneous figure of $400 billion. The benefit would have cost another $10 billion without the limits, Medicare figures show. In fact, the whole program is now estimated to cost $534 billion over 10 years, with some estimates as high as $1.2 trillion.
By excluding low-income people from better drug coverage, experts say, the asset caps hurt retirees whose only transgression was doing what most experts and the government advised: saving for their retirement years.
"Now those who listened to that message and saved are the ones who are being penalized because they can't get the (low-income) benefits," Rice said. "I don't think there was any ill intent on the part of Congress, but the benefit was set up in a way that needy people will be unnecessarily disqualified."
The government began mailing the first of nearly 20 million applications for the low-income drug benefit Friday. The new prescription-drug program starts Jan. 1.
Medicare estimates that 14.4 million people, roughly one-third of its 43 million beneficiaries, are eligible for the special drug coverage because their incomes are below $14,355 for individuals or $19,245 for married couples.
Rice's estimate that another 2.4 million Americans will lose out on the special coverage is higher than the Congressional Budget Office's estimate of 1.8 million, because he used a different method to calculate income and eligibility.
Low-income people who don't qualify will miss out on drug coverage that requires low or no premiums and deductibles, sets no coverage limits and offers co-pays ranging from $2 to $5. Instead, they can get the standard Medicare drug benefit, which will require them to pay out-of-pocket costs such as a $250 deductible and an annual premium that averages $444.
Rice fears that those prices and the drug benefit's "doughnut hole"—in which coverage stops when drug costs reach $2,250 each year and doesn't kick in again until $5,100 is spent—will lead low-income seniors to bypass the program altogether.
That's what Thomas Walker, a retired ironworker from Kissimmee, Fla., who has disabilities, said he planned to do. Instead, he plans to buy cheaper drugs from Canada.
Walker, 52, receives $10,740 from Social Security and meets the income guidelines for Medicare's low-income drug coverage. But his assets—$35,000 in stock holdings—exceed the program's asset limit for individuals.
Walker's diabetes, high blood pressure and psychiatric medications, which would cost about $4,452 per year, are paid for now by drug company patient-assistance programs. But he'll lose that coverage in January once he becomes eligible for Medicare's drug benefit. Under Medicare, Walker's out-of-pocket drug costs will be roughly $3,500 annually. At that rate, he'd exhaust his life savings in less than 10 years.
"If I have to pay Medicare, in a matter of time I'm going to be broke," Walker said. "I have no way to put those assets back. What am I supposed to do when my roof fails? My truck is 20 years old, and I'm going to have to replace it at some point. ... I just don't think it's fair, and there's nobody to lash out at."
Belongings that count toward the asset limit include: real estate other than one's primary residence; bank accounts such as checking, savings and certificates of deposit; stocks; bonds, including U.S. savings bonds; IRAs and mutual funds; cash at home and elsewhere.
Assets that don't count toward the limit include: vehicles; household goods and personal possessions; resources not easily converted to cash, such as farm machinery, jewelry and livestock; and federal income-tax refunds.
John Rother, the policy director at AARP, said the asset test was inappropriate because Medicare, like Social Security, was a social insurance program, not a welfare program.
"It should look at income but it should not be looking at assets precisely for this reason. So we object to any asset test and will continue to push for elimination of it," he said.
Rother said it was unlikely that Congress would take up any legislation to amend the drug bill this year, but that efforts to change or eliminate the asset test could gain steam next year.
Medicare spokesman Gary Karr said the test was designed to make sure the neediest people got coverage. He said the test was more lenient than those for federal assistance programs such as Medicaid and Social Security Insurance.
And most importantly, it's required by law.
"This was a decision that Congress made. ... It's in the law and we must follow it," he said.
(c) 2005, Knight Ridder/Tribune Information Services.
PHOTOS (from KRT Photo Service, 202-383-6099): MEDICARE-DRUGPLAN
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