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Final rules for Medicare's new drug benefit issued

WASHINGTON—The Bush administration issued final rules Friday for implementing Medicare's new voluntary prescription-drug benefit, which begins in 2006 and will pay roughly 75 percent of the drug costs of most people who enroll.

The drug benefit, which will be delivered through private insurers subsidized by the government, will cut $8 billion in state drug spending for low-income seniors over its first five years, said Mark McClellan, the Centers for Medicare & Medicaid Services administrator.

In addition, 6.3 million low-income Medicare enrollees who also qualify for Medicaid, so-called "dual eligibles," will be enrolled in the new drug benefit automatically to avoid a possible lapse in coverage, McClellan said. Dual eligibles, who now receive drug coverage through Medicaid, are poorer than most Medicare and Medicaid enrollees and more likely to have multiple chronic illnesses that require costly long-term drug treatments.

McClellan's reassurances were aimed at two concerned constituencies: state officials, who fear they'll be forced to pick up new costs, and advocates for low-income clients, who fear they'll face new costs or get lost in the shuffle as the new program gets under way.

Under the plan, dual eligibles will pay no premiums or deductibles and their co-payments won't exceed $3 per prescription. That amounts to 98 percent of their drug costs, McClellan said.

The final rules, which encompass more than 2,000 pages, also call for Medicare to pay employers 28 percent of retired workers' annual drug costs. That's meant as an incentive to employers to continue covering retirees. With tax breaks, the incentive to companies could be worth $1,000 per retired worker.

The guidelines also, for the first time, offer Medicare recipients the option of getting all their Medicare benefits through a preferred provider organization, the most popular managed-care plan for people under 65.

The rules, which were published Friday in the Federal Register, were required as part of the Medicare Modernization Act, which President Bush signed into law in December 2003. They reflect the Bush administration's push to use private competition as a way to cut costs for Medicare, the national health plan for seniors.

To explain the new drug benefit to 41 million eligible beneficiaries, Medicare will spend $300 million this year for education and public awareness programs, particularly for those with low incomes.

"All people with Medicare are now one huge step closer to having a new drug benefit and new health-plan options, regardless of their income or how they receive their medical coverage," McClellan said.

Beneficiaries enrolled in Medicare's traditional fee-for-service program can stick with it and choose coverage from a private plan that provides only prescription-drug coverage. Those enrolled in Medicare managed-care plans, also known as "Medicare Advantage" plans, must obtain their drug coverage through those plans.

Medicare requires that all beneficiaries have at least two choices for their drug-coverage option, with at least one being a plan that provides only drug coverage. To assure coverage of nursing home residents, all drug plans will have to serve nursing home pharmacies. Medicare will announce the number of available plans in late summer.

Medicare beneficiaries who don't qualify for low-income assistance will pay a $35 monthly premium and a $250 annual deductible. Once the deductible is paid, Medicare pays 75 percent of drug-purchase costs up to $2,250. The program requires seniors to pay 100 percent of their prescription costs between $2,250 and $3,600. Medicare then pays 95 percent of all costs that exceed $3,600.

Medicare provides additional payment help for 4.6 million low-income seniors who aren't eligible for Medicaid, which covers the poorest Americans. Medicare will pay an average of 96 percent of drug costs for about 3 million of these beneficiaries and an average of 85 percent for 1.6 million other low-income recipients who earn slightly more.

The leading drug-industry trade group, the Pharmaceutical Research and Manufacturers of America, which had pushed for coverage of more medications under the benefit, was reviewing the final rules and had no comment Friday. The Pharmaceutical Care Management Association, which represents private companies that oversee drug benefits for employers, said the rules should help hold down drug prices.

Whether the government can shoulder the drug benefit's cost—estimated at $400 billion for the first 10 years when Congress approved it and at more than $500 billion now—continues to concern fiscal conservatives and other critics in Congress.

For more information about the Medicare drug benefit and other provisions of the Medicare Modernization Act, go to


(c) 2005, Knight Ridder/Tribune Information Services.

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