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The Ins And Outs of Medicare Changes

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The Medicare reform package poised to pass Congress calls for sweeping changes in the program -- including, for the first time, a prescription drug benefit. But other changes mean wealthier seniors will have to pay more toward their coverage.The Medicare plan expected to be passed by the Senate and sent to the president for his signature adds a prescription drug benefit that had long been sought by seniors.

But the complex legislation also changes Medicare in many other ways: It boosts financial support for insurers to offer competition to the program, creates a ''means test'' that requires higher fees from wealthier seniors, and adds a pretax health savings account for working-age people that could help shape employer-provided health insurance in coming years.

Most of that won't happen right away. Here are some changes and how they will work:

Prescription drug coverage

Starting in spring, seniors may purchase a drug discount card endorsed by Medicare. The cards could cost up to $30 annually and might provide savings of 15% to 25% per prescription. But savings could vary, as could the drugs covered. Some low-income seniors could qualify for $600 toward drug purchases with the card.

Many such discount cards are now being sold to consumers, although none is endorsed by Medicare. About nine major drug companies last year rolled out discount cards targeted to low-income people that offer greater savings than the planned Medicare card. The drug companies say they would continue to offer their cards to low-income people next year, but might re-evaluate once the Medicare drug card is available.

The next big change for Medicare will be in 2006, when the drug benefit begins.

As envisioned, private insurers will begin selling drug coverage policies. Seniors can choose to purchase such a plan for a monthly premium estimated at $35, although the amount might vary.

Some seniors might also choose to get drug coverage by joining a Medicare HMO or preferred provider organization that offers coverage. Cost of those plans, and the coverage they offer, could vary from region to region. Seniors could also choose not to enroll in drug coverage, but they would run the risk that their premiums could be higher in later years if they change their minds and want to enroll.

Not all areas will get stand-alone drug coverage. Some critics are skeptical that insurers will rush to offer such policies. In areas where fewer than two choices arise -- at least one stand-alone drug policy and one HMO or PPO -- seniors will be able to buy drug coverage directly from Medicare.

If there are two plans in an area, however, traditional Medicare will not provide a stand-alone benefit. Critics say that means seniors might be faced with buying a drug policy they don't like or joining an HMO. Cost of stand-alone drug policies could vary from region to region, and the plans would have wide discretion on how many drugs they cover for different conditions.

Seniors will still pay a substantial portion of their drug costs under the legislation. Those with low drug costs may even find that savings are offset by the amount they pay for the annual premium. Those with moderate drug costs will save money, and those with catastrophic costs -- more than $5,000 a year -- will save substantially.

Low-income Medicare members would get some breaks on the premium, deductible and percentage co-payment based on income and assets. Those below 135% of the poverty line would not pay any premium or deductible and only $1 to $5 per prescription, based on income and the type of drug.

But seniors will not qualify for that subsidy if they have more than $6,000 as individuals or $9,000 as a couple in assets, such as savings accounts or life insurance, excluding a house and car. Seniors between 135% and 150% of poverty will pay premiums and deductibles on a sliding scale, so long as they meet the asset requirements.

Health savings accounts

The measure also provides programs for those not in Medicare.

Pre-retirement-age workers with high-deductible health insurance will be able to open Health Savings Accounts starting next year. Workers could put up to $2,250 for individuals and $4,500 for families into those accounts each year tax-free. The money would be used to cover the insurance deductible and other health expenses and could be taken with a worker from job to job. Withdrawals for non-medical uses would be subject to income tax and a 10% penalty.

Under the new law, anyone with a high-deductible health policy, defined as one with a $1,000 deductible for individuals and $2,000 for family coverage, could open a pretax savings account.

The new law is likely to boost interest by employers and insurers in offering high-deductible policies.

Competition in Medicare

Starting in 2010, Medicare may experiment with allowing private plans, including HMOs and PPOs, to compete with Medicare in six yet-to-be determined metropolitan areas. This is one of the most controversial parts of the legislation: Proponents say it creates competition that will be good for Medicare, while opponents say it will lead to further privatization, spiraling costs and the end of Medicare as it now exists.

Under the legislation, a benchmark premium rate will be set in each of the six metropolitan areas. Insurers that charge less than that premium will reap savings, passing some along to patients. But plans that are more expensive would pass those charges along to patients. Traditional Medicare could start charging up to 5% more than competing plans.

Supporters say the demonstration project will show that private insurers can provide benefits more efficiently and cheaply than Medicare. Critics say private plans will be able to spend less because they will attract healthier patients, leaving the costlier beneficiaries in traditional Medicare.

New financial requirements

For the first time, Medicare will begin adjusting its monthly premium for doctor visits and other outpatient care based on income. Starting in 2007, and phasing in over five years, will be larger payments for Medicare members whose incomes exceed $80,000 for individuals and $160,000 for couples. Instead of paying the current 25% of the Medicare Part B premium, which covers doctor visits and other outpatient care, wealthier seniors would pay up to 80% of that premium. The Part B premium for all recipients will be $66.60 a month next year, and will rise based on how much the overall Medicare program's spending increases. When the means testing kicks in, wealthy seniors would pay at least $80 or more a month.

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© Copyright 2003 USA TODAY, a division of Gannett Co. Inc.

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