Asset Test Remains a Target

The federal government has sent out forms to millions of Medicare beneficiaries on limited incomes, hoping they will apply for generous extra help to pay for prescriptions next year under a special provision of Medicare’s new drug coverage.

Although 14 million beneficiaries have incomes low enough to qualify for this assistance, 2.4 million will be ineligible because their assets—such as retirement savings and investments—are too high, according to a study from the Kaiser Family Foundation. AARP and other consumer groups are continuing to push Congress to eliminate the asset test. “It penalizes savings, denies benefits to those who clearly need the extra help and may discourage many people who might qualify from even applying,” says John Rother, AARP’s director of policy.

Beneficiaries with annual incomes no higher than $14,355 (or $19,245 for a couple) will qualify for the limited income assistance—so long as the value of their assets is no more than $11,500 ($23,000 for a couple). A person’s home, vehicles, personal possessions, burial plot and up to $1,500 intended for funeral expenses are not counted in the asset limits. But bank accounts, investments, additional real estate and the value of life insurance policies are counted.

Though the asset tests are meant to exclude people with substantial resources, the Kaiser study found that half of those excluded had savings of $35,000 or less. This amount “is really not a lot of money to have available for the rest of your life when you turn 65,” says Thomas Rice of the School of Public Health at the University of California, Los Angeles, who is lead author of the Kaiser report. “These are people who’ve saved a little money in the bank [for protection] against life’s unexpected events,” he adds. “So the asset test penalizes them for doing the right thing—saving for retirement.”

Almost half of those the test disqualifies for the extra help are widows, the study found. Typically, “when the husband dies, income plummets, making the widow eligible” for the assistance, Rice says. But assets from the marriage may exclude her, since the limits are far lower for a single person than a couple.

Congress made the asset test a requirement, for the first time in Medicare, as a cost trade-off. Eliminating it would add at least $35 billion to the drug benefit’s estimated cost of nearly $600 billion over the next 10 years, which already alarms many lawmakers. Still, AARP is pressing Congress to make adjustments before the drug benefit starts in January next year.

Eliminating the asset test is the most important change needed to improve the new Medicare law, Rother says, though AARP continues to push for others. These include:

• narrowing the " doughnut hole " — the coverage gap in the middle of the standard drug benefit that will affect enrollees (except those who get limited-income assistance) whose total drug costs exceed $2,250 in a year;
• letting Americans buy drugs legally from abroad at lower prices, which has the support of most lawmakers;
• allowing Medicare to negotiate directly for lower prices with drugmakers if Medicare drug plans are unable to obtain reasonable discounts.

Additional Related Links

Limited-Income Beneficiaries Are Trading Up

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

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

State-by-State Guide to Pharmacy Assistance Programs

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