Overview of the Medicare Drug Benefit Presented by Tricia Neuman, Sc.D. Vice President and Director, Medicare Policy Project The Henry J. Kaiser Family Foundation for Pfizer Pro Bono Access to Healthcare Conference August 11, 2005

Medicare Rx Benefit Phase 1: Transitional Discount Drug Card Program –Medicare-approved discount drug cards available June million beneficiaries enrolled as of July 2005 –$600 credit in 2004 and 2005 for low-income less than 135% poverty without Medicaid (no asset test) –1.9 million (of ~7.2 million eligible ) receiving credit –Phases out December 31, 2005 Can use remaining credit in ‘06 if not in Medicare Rx plan Phase 2: Medicare Prescription Drug Benefit –Begins on January 1, 2006 Exhibit 1

The Basics Beneficiaries have the choice of: –Traditional, fee-for-service Medicare and receiving drug-only coverage through private prescription drug plans (PDPs) OR –Medicare HMO or PPO for basic benefits and prescription drugs (“Medicare Advantage” drug plans; MA-PDs) OR –Not enrolling in Medicare drug plan New Medicare drug plans provide “standard” prescription drug benefit or actuarial equivalent Premium and cost-sharing assistance available for those with incomes below 150% of poverty and modest assets Medicaid drug coverage terminates December 31, 2005; full- benefit duals transition to Medicare plans by January 1, 2006 Enrollment period from November 15, 2005 – May 15, 2006 –In the future, Nov. 15- Dec. 31 Exhibit 2

Standard Medicare Drug Benefit, ~$450 average annual premium $250 Deductible $2,250 in Total Drug Costs* $5,100 in Total Drug Costs** 25% 5% $2,850 Gap: Beneficiary Pays 100% *$2,250 in total spending is equivalent to $750 in out-of-pocket spending. **$5,100 in total spending is equivalent to $3,600 in out-of-pocket spending. SOURCE: Kaiser Family Foundation analysis of Medicare Prescription Drug, Improvement, and Modernization Act of Medicare Pays 75% Medicare Pays 95% Gap in Coverage (the “doughnut hole”) Catastrophic Coverage Partial Coverage up to Limit Beneficiary Out-of-Pocket Spending Exhibit 3

Low-Income Subsidy Levels Monthly Premium Annual Deductible Copayments Full-benefit dual eligibles with income <100% of poverty ($9,570/individual; $12,830/couple in 2005) $0 $1/generic $3/brand- name; no copays after out-of-pocket drug spending reaches $3,600 ($5,100 total) Full-benefit dual eligibles with income >100% of poverty $0 $2/generic $5/brand- name; no copays after out-of-pocket drug spending reaches $3,600 ($5,100 total) Institutionalized full-benefit dual eligibles $0 No copays Individuals with income <135% of poverty ($12,920/individual; $17,321/couple in 2005) and assets <$6,000/individual; $9,000/couple $0 $2/generic $5/brand- name; no copays after out-of-pocket drug spending reaches $3,600 ($5,100 total) Individuals with income 135%-150% of poverty ( $12,920-$14,355/individual; $17,321-$19,245/couple in 2005) and assets <$10,000/individual; $20,000/couple sliding scale up to ~$37 $50 15% of total costs up to $5,100; $2/generic $5/brand-name thereafter Exhibit 4 Overview of Low-Income Part D Drug Benefits, 2006 Note: Cost-sharing subsidies paid by CMS count toward the out-of-pocket threshold. SOURCE: Kaiser Family Foundation summary of Part D low-income subsidies in 2006.

Big changes expected for Medicare “markets” –Many expect proliferation of new plans: PDPs, MA-PDs (HMOs and PPOs), and private fee-for-service plans –More “players” involved in education/marketing/sales/etc. –Described by some as national test of “consumer-driven” model Big changes for beneficiaries –Voluntary drug benefit – but with “opt in” rather than “opt out” (unlike Part B) and with penalty for late enrollment –Complex decisions – which may need to be made annually –New annual lock-in MMA introduces Medicare income/asset tests –Low-income subsidies – administered by Medicaid and SSA (2006) –New income-related Part B premium (2007) Part D and Other MMA Signal More Fundamental Change in Medicare Exhibit 5

Employer- Sponsored Coverage Indian Health Service Medigap Medicaid Veterans No Drug Coverage Medicare Advantage Medicare- Approved Drug Discount Card Medicare Savings Programs The “Right” Choice Will Depend on Many Factors, Including Current Source of Coverage Exhibit 6 TRICARE State Pharmacy Assistance Program AIDS Drug Assistance Program

29 Million Expected to Participate in 2006 Total = 43.1 Million Medicare Beneficiaries (2006 estimate) Note: *Other non-participants includes federal retirees with drug coverage through FEHBP or TRICARE, and those who lack drug coverage. **Other low-Income includes non dual eligibles with incomes <150% FPL. SOURCE: HHS OACT, MMA Final Rule, January Projected Part D Participants: 29.3 million Not Participating in Part D: 13.8 million Exhibit 7

Projected Reduction in Out-of-Pocket Drug Spending Under the Medicare Drug Benefit, 2006 SOURCE: Actuarial Research Corporation analysis for the Kaiser Family Foundation, November Average Change: - 37% All Other Medicare Drug Plan Enrollees Medicare Drug Plan Enrollees Who Receive Low-Income Subsidies Exhibit 8

Key Provisions –Medicaid stops paying for Rx Dec. 31, 2005 –Auto-enrolled in Medicare Rx plans by HHS - Fall 2005 In plans at or below average –Medicare Rx coverage begins Jan. 1, 2006 –Can switch plans during year Key Issues –Gaps in coverage –Will drugs be covered –Choice of plans –Will states wrap? Exhibit 9 Issues for Full Benefit Dual Eligibles (6.3 million) SOURCE: MCBS 2002 Access to Care File.

Exhibit 10 Issues for Other Low-Income Beneficiaries (Non-Duals) (8.1 million) Low-income subsidy eligibility and participation: 10.9 million Source: CMS, OACT, MMA Final Rule, January million Non-Duals expected to qualify based on income and assets Dual Eligibles (auto-enrolled) 6.3 million Key Provisions –Apply for subsidy through SSA or Medicaid Except QMBs, SLMBs, and QI-1s and SSI eligibles - deemed Reapply at least annually –Must also enroll in Part D plan Facilitated enrollment for QMBs, SLMBs, QI-1s and SSI, and others determined eligible for low income subsidy – by June 1, 2006 Key Issues –Outreach and enrollment –2.4 million meet income but not asset test –Choice of plans? Covered drugs? –Different treatment if eligibility determined by Medicaid or SSA Dual Eligibles 6.3 million <150% FPL; meet asset test <135% FPL; meet asset test

Participation Rates for Selected Programs Exhibit 11 Note: Numbers appearing as a range were averaged. Rates for Medicaid and SSI are from 2000 and 2001, respectively. Medicaid take up rates include full benefits and Medicare Savings Programs. SOURCE: Medicaid and SSI rates from GAO, March 2005; QMB and SLMB rates from CBO, July 2004;transitional assistance for the Medicare drug discount card program, HHS 2005.

DateAction Taken Days from today June 6Plans submit bids to CMS July 1 SSA & Medicaid review low-income subsidy applications August 3CMS releases national average monthly bid amount September 14CMS approves bids34 days October 1Approved plans begin marketing51 days October 13CMS releases detailed information about plans63 days November 15Open enrollment begins96 days December 31Medicaid drug coverage for dual eligibles ends142 days January 1Medicare Rx coverage for PDP/MA-PD enrollees143 days The Clock Is Ticking: Key Dates and Deadlines Exhibit 12

Two of Three of Seniors Say They Do Not Understand the New Law Exhibit 13 * Don’t know responses not shown. Source: Kaiser Family Foundation Health Poll Report survey (conducted March 31 – April 3, 2005). 68% do not understand the drug law

Yes, will enroll Have not heard enough to decide No, will not enroll Don’t Know/ Refused Minority of Seniors Said They Plan to Enroll in a Medicare Drug Plan in 2006 SOURCE: Kaiser Family Foundation Health Poll Report survey (conducted March 31 – April 3, 2005). Exhibit 14