Visualizing the (proposed) Medicare Drug Benefit:

Using information from the New York Times and Easterblog (!), we created a chart that shows who will be paying what for prescription drugs. This chart applies to most people. Those deemed poor (income less than $12,000 and/or assets less than $6,000) will have subsidies or waived deductables or waived coverage gaps.



Easterbrook writes:

Assuming any of this can be understood, the first provision appears to mean the typical senior will pay $420 per year to receive a benefit of $1,444--75 percent of the difference between $275 and $2,200--plus catastrophic coverage for most costs over $3,600. A premium of $420 for $1,444 of reimbursement plus catastrophe protection isn't bad, considering that a high percentage of the insureds will claim benefits.

So this part of the plan, which will be what is used by the majority of middle-class reasonably-healthy seniors, is okay but not a fabulous new windfall. Once typical middle-class seniors realize what they're getting is okay but not hugely great, there is bound to be grumbling; the political expectation seems to be that drugs for seniors will become free. Some middle-class seniors will also protest that they are being charged not $420 but $695 for the $1,444 benefit--the premium plus the deductible. But the $420 premium pays for the $1,444 reimbursement that a senior otherwise wouldn't get. The first $275 the patient would be paying whether the plan existed or not.

CLARIFICATION / CORRECTION: Easterbrook writes about, "catastrophic coverage for most costs over $3,600", but that's misleading. It sounds like solid coverage when drug costs exceed $3,600. According to the Times, the Medicare plan restarts when "the beneficiary has spent a total of $3,600 out of pocket. " That event takes place when the drug costs reach $4,600 ($383/mo). Easterbrook is writing about coverage when the beneficiary's out-of-pocket payments exceed $3,600.

Our view: We're not particularly impressed with the plan. Considering the initial $420/yr premium and the $275 deductable, the program pays 40% until the costs reach $4800 - after which drugs are virtually free.

We should point out that the 40% is an average; the benefit ranges between 55% and 30% when total costs are below the $4,800 "FreePoint". In fact, the benefit gets worse (declining from 55% to 30%) as the patient gets sicker. (What's really happening is that the benefit is pegged at $1444 while costs increase, so the percentage of coverage declines as a result.)

There are several details that need to be examined. For example, will any of these figures be inflation adjusted (especially those that are used to determine who is poor)?

Our best summary of the program is that is appears to be "half a loaf" (actually, more like 40% of a loaf). And that may not be good enough. We don't know what the general situation is for seniors, but we suspect that paying up to $3,500 for drugs (premiums, deductables, patient-share) may well be beyond the budgets of those who are not poor, but not well-off either.

posted by Quiddity at 11/19/2003 09:47:00 PM