The Centers for Medicare and Medicaid Services (CMS) anticipates that enrollees will realize average savings between 10 to 15 percent of their total drug costs. The savings for particular drugs, especially generic drugs, may be substantially higher. (It is worth noting that some informed observers have questioned the likelihood that these estimated discounts can be achieved.)

This Capital Checkup summarizes what sponsors of health plans that cover retirees need to know about the new discount card program enacted by MMA. Click on one of the following section headings to go directly to the relevant text:

• Available Drug Discount Cards
• Enrollment and Eligibility
• Drugs Available
• Pharmacy Network Requirements
• Special Assistance for Low-Income Beneficiaries
• Relationship to Group Health Coverage
• Transition to the Permanent Part D Benefit
• Implications for Plan Sponsors

Available Drug Discount Cards

Enrollment and Eligibility

Individuals entitled to, or enrolled in, Medicare Part A or enrolled in Medicare Part B are eligible to enroll in an endorsed discount card program, as long as they do not have outpatient drug coverage through Medicaid (including a section 1115 waiver program).³

Information on how to enroll in a drug discount card program is available on the Medicare Web site or by calling 1-800-MEDICARE. Medicare beneficiaries can use the Medicare Web site to compare drug costs and select a drug discount card based on which drug card offers them better discounts.

Some companies permit online enrollment in their drug discount card program. Alternatively, Medicare beneficiaries can call the card company to request an enrollment form. The CMS will verify beneficiaries' eligibility to enroll, as well as eligibility for the low-income subsidies discussed below, through computer matching of federal databases (including data submitted to the CMS by state Medicaid programs). Eligibility is determined upon application and will not be reevaluated unless the individual leaves the program and has to reapply.

Generally, individuals can enroll in only one program per year. They can enroll in any program available in their state unless they are enrolled in a Medicare managed care organization (MCO) that offers an exclusive card program that is only open to the MCO's enrollees. In that case, the person can enroll only in the exclusive card program offered by his or her MCO.

Individuals who enroll in one card program in 2004 will have the opportunity to switch to a different card program for calendar year 2005 by making a change during open enrollment (November 15, 2004 through December 31, 2004). There are also special enrollment periods, such as when individuals move outside the service area of their current program, which permit mid-year changes in enrollment.

Card sponsors do not have to charge an enrollment fee, but if they do, the maximum fee is $30 per year. The fee is not prorated for part-year coverage.

Drugs Available

Drugs covered under this program are the same as those that will eventually be covered under the permanent Medicare Part D benefit, with one notable difference: discount card sponsors may also choose to offer discounted prices for over-the-counter drugs. Discount card sponsors may use a prescription drug formulary, but they must offer a negotiated price on at least one drug in each of over 200 categories of drugs commonly used by Medicare beneficiaries. The specific categories are listed in the regulations governing the temporary drug discount card program, which were issued by the CMS.⁴

Pharmacy Network Requirements

Discount card programs are not eligible for the Medicare endorsement if drugs are provided only through mail order. Instead, endorsed programs must meet local pharmacy access standards. For example, in an urban area, at least 90 percent of Medicare beneficiaries living in the program's service area must live within two miles of a network pharmacy.

Special Assistance for Low-Income Beneficiaries

Special assistance will be available to certain low-income individuals through a subsidy program referred to as "transitional assistance."⁵ To be eligible, incomes must be less than (or equal to) 135 percent of the federal poverty level for their family size (either single or married). In addition, the individual must not have outpatient drug coverage through a group health plan, other health insurance coverage, TRICARE⁶ or the Federal Employees Health Benefits Program (FEHBP). Note, however, that individuals who have outpatient drug coverage through a Part C (i.e., Medicare+Choice now called "Medicare Advantage" ⁷) plan or a plan offering only "excepted benefits" (e.g., vision or dental benefits), such as a Medigap plan, are eligible for transitional assistance, assuming they meet other eligibility requirements. This is the case even if the individual's group benefits plan pays for some or all of the cost of the Part C or "excepted benefits" plan.⁸

Beneficiaries eligible for special assistance will receive $600 per year to apply towards their covered drug expenses.⁹ They will pay a coinsurance payment at the pharmacy (either 5 or 10 percent) and the remaining bill will be covered through the $600 benefit. The pharmacy statement will tell these beneficiaries how much of the $600 they have left. Amounts remaining at the end of the calendar year are rolled over to the next year. In addition, they do not have to pay any enrollment fee (CMS pays it for them).

States can elect to pay enrollment fees (for residents not eligible for the federal subsidy) and coinsurance for residents eligible for the federal "transitional assistance" subsidy.

Relationship to Group Health Coverage

Endorsed discount card programs are open to both Medicare-eligible employees and retirees, as long as they meet the eligibility criteria set out above. However, as discussed above, most individuals with group health coverage are not eligible for the $600 credit.

Nothing in the CMS regulations prevents group health plan sponsors from reimbursing plan participants (and beneficiaries) who enroll in an endorsed drug discount card program for the enrollment fee (which cannot exceed $30 per year) or for coinsurance for drugs purchased with the card. However, most group health drug coverage provided through a pharmacy network would likely produce discounts equal to or better than those available through a drug card.

The CMS does not anticipate that plan sponsors will alter their current coverage in response to the drug discount card program given the program's short-term nature and the limited number of people eligible for the federal subsidy.¹⁰

Transition to the Permanent Part D Benefit

The Medicare-endorsed drug discount card program will officially terminate on December 31, 2005 because coverage under Part D will be available starting January 1, 2006. Nevertheless, individuals enrolled in the drug discount card program on December 31, 2005 will be able to continue to use their cards and take advantage of the associated negotiated discounts until the date their Part D benefit takes effect, which may be as late as April 2006. During this transition period, cardholders cannot be charged a fee for use of the card.

Communications and Other Implications for Plan Sponsors

Most health plan sponsors need not take any action in response to the drug discount cards with respect to their plan design, but should be aware that this Medicare reform legislation carries with it a variety of immediate, short- and long-term communications needs.¹¹ For example, a recent survey conducted by the Kaiser Family Foundation indicates that over 60 percent of seniors understand the new law "not too well" or "not well at all."¹² Therefore, health plan sponsors are likely to receive questions from retirees and should be prepared to guide their retirees and those thinking about retirement in their drug discount card choices. Plan sponsors may want to become familiar with the tools on the Medicare Web site in order to better answer questions from retirees about the drug benefit. In addition, plan sponsors may want to warn retirees to watch out for scams.

Retirees with pharmacy networks and drug coverage are unlikely to need a drug discount card unless they are taking non-formulary medications. In that case, they might want to purchase a discount card related to their medication.

Retirees without drug coverage may want to purchase the drug discount card in order to avoid paying retail at the pharmacy window. These retirees should review their card choices and assure that the Medicare-endorsed card that they select covers most of their medications. A retiree can only purchase one Medicare-endorsed card, but he or she can still buy a private prescription drug discount card that is not regulated by Medicare.

Sponsors of group health plans should make sure that their PBM contract extends all negotiated discounts to the plan participants, even when eligible participants exhaust their annual plan maximums. In cases where plans with limits do not extend the group discount, the discount card may produce savings to retirees.

As with all issues involving the interpretation or application of laws, plan sponsors should rely on their attorneys for authoritative advice on the new Medicare law. Segal consultants can be retained to assist plan sponsors with their retiree health benefits design and communications related to the new prescription drug discount cards.

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