Medicare Modernization Act of 2003: Implications for Low-Income People and State Medicaid Programs

1. K A I S E R C O M M I S S I O N O N Medicaid and the Uninsured Medicare Modernization Act of 2003: Implications for Low-Income People and State Medicaid Programs Jocelyn Guyer Kaiser Commission on Medicaid and the UninsuredOctober 7, 2004

2. Implications for People on Medicare and Medicaid (“Dual Eligibles”)

3. Characteristics of Dual Enrollees Compared to Other Medicare Beneficiaries, 2000 *Community-residing individuals only. SOURCE: KCMU estimates based on analysis of MCBS Cost & Use 2000.

4. Treatment of Dual Eligibles in the Medicare Law • As of January 1, 2006, full benefit dual eligibles no longer are eligible for Medicaid-financed prescription drug coverage • Loss of Medicaid coverage applies even if a dual eligible is not enrolled in a Part D plan • Instead, full benefit dual eligibles are expected to enroll in subsidized Part D coverage • Full benefit dual eligibles will be autoenrolled in a Part D plan if necessary; proposed MMA regulations leave unclear who will handle • All dual eligibles are deemed automatically eligible for a Part D low-income subsidy • Dual eligibles will receive extensive Part D subsidies, but gaps in their Rx coverage may remain • Risk of no coverage during a transitional period • The drugs they need may not be covered by their Part D plan, particularly because full subsidies are limited to average or low-cost plans • Some co-payment obligations

5. Federal Medicaid matching funds no longer available for prescription drugs for full benefit dual eligibles. States must begin accepting applications for the new low-income subsidy program July 1 October 15 November 15 First day on which dual eligibles and others can sign up for a Part D plan. Deadline for HHS to provide information on the Part D plans available to Medicare beneficiaries. Key Dates Related to Enrollment of Full Benefit Dual Eligibles in Part D Plans MMA regulations call for dual eligibles to begin to be autoenrolled in Part D plans if they have not signed up on their own (date likely to change). January 1 May 15 2006 2004 2005

6. Challenges in Helping Dual Eligibles Make the Transition to Medicare Part D • To avoid coverage gaps, 6.4 million dual eligibles will need to be signed up for Part D plans in 6 weeks • Dual eligibles unlikely to voluntarily enroll in the absence of extensive counseling and additional time to make a choice • Autoenrollment will require a number of steps • Identify dual eligibles who need to be signed up for Part D plans • Identify plans for which they are eligible • Assign dual eligibles to plans and tell plans which dual eligibles they are supposed to cover • Once autoenrolled in a plan, dual eligibles still will need help before they can use their Part D coverage • Provide dual eligibles with enrollment cards • Educate them about their Part D plans’ rules for filling prescriptions • Switch their drugs to match those on their plans’ formularies (or try to secure exceptions) • Advise them of option to switch Part D plans • Dual eligibles in nursing homes will require special assistance

7. Distribution of Medicare Beneficiaries in Long-Term Care Facilities, by Insurance Status, 2000 Non-dual eligibles 40% Total = 2.3 million Medicare beneficiaries SOURCE: Medicare Current Beneficiary Survey Access to Care File, 2000.

8. Implications for Other Low-Income Individuals

9. The New Part D Low-Income Subsidy Program • Establishes a Medicare Part D low-income subsidy program • Eligibility is extended to individuals with income below 150 percent of poverty who meet an asset test • Subsidies are particularly generous for those below 135% of poverty who meet an asset test • To secure subsidized Part D coverage, beneficiaries must complete a two-part process: • Sign up for a Part D plan • Enroll in the low-income subsidy program • Special eligibility, enrollment, and cost-sharing rules apply to dual eligibles

10. Eligibility for the Low-Income Drug Subsidy Among Part B Medicare Beneficiaries, Calendar Year 2006 Eligible for Part D subsidy (14.2 million) Ineligible due to income > 150% poverty (23.8 million) Income <150% poverty, but ineligible due to assets (1.8 million) Medicare Part B Beneficiaries = 39.9 Million SOURCE: KCMU analysis of CBO’s cost estimate of the Medicare prescription drug benefit, July 2004. Due to rounding, percentages may not total 100% and data may not sum to 39.9 million.

11. Characteristics of Subsidy-Eligible Individuals, Calendar Year 2006 Non-duals Eligible for Partial Subsidy (1.9 million) Eligible for Part D subsidy as a dual eligible (6.4 million) Non-duals Eligible for Full Subsidy (6.0 million) Subsidy Eligible Individuals = 14.2 Million SOURCE: KCMU analysis of CBO’s cost estimate of the Medicare prescription drug benefit, July 2004. Due to rounding, percentages may not total 100% and data may not sum to 39.9 million.

12. The New Part D Low-Income Subsidy Program:Application and Enrollment Procedures • People can apply for Part D subsidies at Social Security Administration offices or State Medicaid agencies • Treatment may vary depending on site of application (e.g., verification requirements, appeals rights, redetermination procedures, “backdoor” access to subsidies via Medicaid eligibility could depend on application site) • States must screen applicants for Medicaid eligibility under Medicare Savings Programs and, if eligible, offer them enrollment • Some details of enrollment process beginning to emerge in HHS’s proposed MMA regulations • States required to begin accepting applications on July 1, 2005 • All QMBs, SLMBs, and QI-1s will be eligible for the full low-income subsidy • Asset test will consider only “liquid assets” and non-primary residences • For people who apply at SSA, automated data matches will be used to verify income and assets as much as possible • SSA expected to issue proposed regulations shortly • States likely to be encouraged to forward low-income subsidy applications to SSA for processing, creating a system under which SSA “owns” the applications

13. Implications for State Medicaid Programs

14. Key Elements of the Medicare Law with Implications for State Medicaid Budgets • Elimination of Medicaid drug coverage for “dual eligibles” • Will states end up supplementing Part D coverage for dual eligibles? • How will “losing” Rx spending on dual eligibles affect Rx cost containment efforts for other Medicaid populations? • The “clawback” -- mandatory payments to the federal government to help finance the Medicare drug benefit for dual eligibles • Responsibilities for administering Medicare’s low-income subsidy program • The “screen and offer” requirement – requirement to screen people who apply for a Part D subsidy for Medicaid and, if eligible, offer them coverage

15. Non-Rx Spending for Dual Eligibles ($82.7 Billion) 36% Spending on Other Groups ($136.7 Billion) 59% 6% Rx Spending for Dual Eligibles ($13.4 Billion) Spending on Dual Eligibles as a Share of Medicaid Spending on Benefits, FY2002 42% 6% Total Spending on Benefits = $232.8 Billion Note: Due to rounding, percentages do not total 100%. SOURCE: Urban Institute estimates prepared for KCMU based on an analysis of 2000 MSIS data applied to CMS-64 FY2002 data.

16. Total Medicaid Spending on Prescription Drugs, 2002 48% ($11.3 Billion) 52% ($12.1 Billion) Total Spending = $23.4 Billion SOURCE: Urban Institute estimates prepared for KCMU based on MSIS data for FFY2000 and Form 64 FFY2002 data. Data reflect expenditures on outpatient prescription drugs only and are net of Medicaid rebates.

17. Estimated Impact of the Medicare Law (H.R. 1) on State Medicaid Spending, FY2004-2013 Medicaid Savings Retained by States ($17.2 billion) Additional Spending for New Enrollment of Medicaid Beneficiaries Due to H.R. 1 ($5.8 billion) 15% 5% Mandatory State Payments to the Federal Government (“Clawback”) ($88.5 billion) 3% 77% New Administrative Costs for Medicare’s Low-Income Subsidy Program ($3.1 billion) Reduction in State Spending Due to Eliminating the Medicaid Drug Benefit for Dual Eligibles = $114.6 billion Note: Estimates do not include the effects of Medicaid provisions in Title X of H.R. 1. SOURCE: KCMU analysis of Congressional Budget Office estimates, 2003.

18. Estimated Impact of the MMA on State Medicaid Spending, Year-by-Year In Billions Medicaid Prescription Drug Savings New State Medicaid Costs Due to MMA $0.1 Note: Estimates do not include the effects of Medicaid provisions in Title X of MMA. SOURCE: KCMU analysis of Congressional Budget Office estimates, 2003.

19. Conclusion • Key Implications for dual eligibles • Risk dual eligibles may end up without any Rx coverage during transition • Once enrolled, some may have problems getting drugs or meeting co-payments • Complexities of the MMA are likely to be particularly difficult for dual eligibles to understand and navigate • Key implications for other low-income individuals • Millions of people have a new opportunity to secure assistance with Rx costs • Realizing the potential of the MMA will require aggressive outreach and enrollment efforts and overcoming key challenges • Two-step enrollment process • Need for SSA and states to closely coordinate enrollment efforts • Key Implications for states • Less fiscal relief in Medicaid than expected; some states could possibly fare worse as a result of MMA • Some states may have to fill in the gaps in coverage created by transition of Rx coverage for dual eligibles to Medicare Part D • States have major responsibilities for administering Medicare’s low-income subsidy program and, perhaps, autoenrolling dual eligibles

20. Additional Background Materials

21. Overview of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 • In 2004 and 2005, beneficiaries have access to: • Medicare-approved drug discount cards • $600 annual drug subsidy if low-income (<$12,569/single) and no Medicaid drug coverage • Beginning January 1, 2006, beneficiaries have choice of: • Traditional, fee-for-service Medicare, with access to private drug-only plans (PDPs) • Medicare Advantage (MA), integrated plans that cover Medicare benefits and drugs • Regional plans (PPOs) • Local area plans (HMOs) • Low-income beneficiaries may be eligible for subsidies to help pay premiums and cost-sharing under Medicare drug plans • Medicaid no longer provides drug coverage, affecting 6 million dual eligibles

22. Medicare Beneficiaries’ Out-of-Pocket Drug Spending Under New Medicare Rx Benefit, 2006 Beneficiary Out-of-Pocket Spending Catastrophic Coverage 5% Medicare Pays 95% $5,100 (equivalent to $3,600 in out-of-pocket spending) No Coverage $2850 Gap $2,250 Partial Coverage up to Limit 25% Medicare Pays 75% $250 Deductible + ~$420 in annual premiums Note: Benefit levels are indexed to growth in per capita expenditures for covered Part D drugs. As a result, the Part D deductible is projected to increase from $250 in 2006 to $445 in 2013; the catastrophic threshold is projected to increase from $5,100 in 2006 to $9,066 in 2013.

23. Monthly State Payment = X Per Capita Expenditures (PCE) X Dual Eligibles (DE) State Match (S%) X X Phase-Down Percentage (PD%) Per capita Medicaid expenditures on prescription drugs covered under Part D for dual eligibles during 2003, trended forward State share of Medicaid expenditures Number of dual eligibles enrolled in a Medicare Part D plan in the month for which payment is made Phase-down percentage for the year specified in the statute (e.g., 90% in 2006) Formula for Determining Monthly State Clawback Payments 1/12

24. Income as a Percentage of the Federal Poverty Line for an Individual and Couple, 2004 SOURCE: Federal Register.