Trading Up

By Patricia Barry

July-August 2005

Most Medicare beneficiaries on limited incomes will be better off after drug coverage begins next year—even if it causes them to receive less in other kinds of assistance, according to government officials and consumer groups. But fears remain that some people may still fall through the cracks.

The question arises because the drug benefit—at least the part of it that gives substantial extra help to those in greatest financial need—interacts in complex ways with other federal and state assistance programs that help millions of the same people.

These are programs that take medical expenses into account when calculating benefits. If people pay less for drugs, their benefits drop. So those currently without drug coverage will see their food stamps reduced and pay a greater share of their subsidized rent as soon as they get drugs under Medicare. But those effects will be more than offset by the value of the drug benefit, Medicare officials say.

A recent independent analysis commissioned by the Access to Benefits Coalition, a consortium of consumer groups that includes AARP, came to the same conclusion. It found, for example, that a Florida beneficiary now paying $400 a month out of pocket for drugs would next year pay only $40 because she qualifies for extra help under the benefit. This $360 drop in expenses would cause her to lose $40 in food stamps and pay $108 more in rent. But overall she’d save $212 a month, or $2,544 over the year.

“We’d obviously prefer that nobody loses any other benefits, because it may deter some people from signing up for drug coverage,” says John Rother, AARP’s director of policy. But, with the Social Security Administration currently mailing letters to lower-income beneficiaries to persuade them to apply for the extra coverage, Rother adds, “we want everybody who receives that letter to apply because they’ll be better off by doing so.”

The letters are the first step in the rollout of Medicare drug coverage that starts Jan. 1, 2006. Beneficiaries who don’t qualify for limited-income help can begin signing up for the standard benefit in November.

It isn’t clear how many people might be affected by the benefit’s impact on other public assistance. Many of those on food stamps already get drugs from Medicaid, so they will not lose coverage when they’re covered by Medicare.

The drug benefit will not affect people who get help to pay heating bills or most of those receiving Supplementary Security Income, because these programs don’t take medical expenses into account. But it will affect a limited number of people who are disabled and get extra SSI money to reimburse them for drugs that allow them to hold jobs. When their drug bills go down, so will their SSI income by the same amount.

Andrew Imparato, president of the American Association of People with Disabilities, is concerned that agency officials themselves might be confused by these interacting regulations.

“What if some bureaucrat knocks you off food stamps or housing because they make a mistake?” he says. “Even well-educated [officials] could get this wrong because it’s ridiculously complicated, and if you’re a low-income person, you’re probably not in a position to catch the mistake, much less fix it.”

Another program that uses medical expenses to calculate some benefits is Medicaid, the federal-state health insurance program for low-income people. It also covers out-of-pocket costs for people on Medicare, a group known as “dual eligibles” because they’re on both Medicaid and Medicare.

Many states have a “medically needy” system that allows people with incomes too high to qualify for Medicaid to use their medical costs to “spend down” to the eligibility limit. Most older Americans in this group are in nursing homes.

But some, living at home, qualify mainly because of their drug costs. As dual eligibles, these people will automatically receive the special assistance part of the new Medicare program. Throughout 2006, their drug expenses will be slashed. But by the end of that year, many will lose their dual-eligible status because they haven’t spent enough on drugs to meet the Medicaid spend-down test. And some, as a result, will lose their eligibility even for the Medicare limited-income drug benefit because their incomes alone are too high. So what happens to them in 2007?

According to an AARP analysis, they would have no choice but to enroll in the standard, less generous Medicare drug benefit available to people with higher incomes, to maintain coverage. It could take several months, or even most of the year, for a person in this position to rack up enough out-of-pocket drug expenses to requalify for dual-eligible status and low-income drug assistance. The whole process could be repeated every year.

“This is a situation that hasn’t been properly thought through,” says Rother. “It’s something that needs to be fixed over the next 18 months.”

Additional Related Links

AARP Board Member Dr. Byron Thames on Why He's So Eager to Sign Up (June 2005)

State-by-State Guide to Pharmacy Assistance Programs

Medicare Drug Benefit Preview: Do You Qualify for Extra Help in Paying for Rx Drugs? (May 2005)

Overview of AARP's Prescription Drug Discount Card (AARP.org)