Medicare Gets a Shot in the Arm

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 represents the largest expansion in the Medicare health entitlement program since it was enacted in 1965.¹ Three main provisions will affect most families.

Prescription Drug Savings
A prescription drug benefit will be offered to all 40 million seniors and disabled Americans in Medicare. After beneficiaries pay a $35 monthly premium and a $250 annual deductible, the benefit will cover 75 percent of the cost of each person's prescription drugs, up to $2,250 per year. Seniors will have to pay all their own drug costs between $2,250 and $5,100; after costs reach the $5,100 level, catastrophic coverage kicks in, paying 95 percent of drug costs.²

The drug benefit program doesn't begin until 2006. In the meantime, seniors will be able to purchase drug discount cards for about $30 a year. The cards will provide discounts of about 10 to 15 percent off retail drug prices.

Medicare Advantage Plans
One of the more controversial provisions of the new legislation encourages seniors to join private health plans as an alternative to the government-run program. These private plans will have the flexibility to adjust the prescription drug benefit and the overall medical benefits in an attempt to reduce premium and out-of-pocket costs to seniors. Any premium rebates would be added to Medicare recipients' Social Security checks.

Health-Care Savings Accounts
Seniors who choose Medicare Advantage plans with deductibles over $1,000 will be eligible to set aside pre-tax dollars in special health-care savings accounts, from which they can be reimbursed for specific health-care expenditures.

The Medicare Modernization Act will change the way in which Medicare provides health care for  seniors. Understanding how the system works could influence your personal finances in the years ahead.

1) The Washington Times, December 8, 2003
2) AARP, December 2003

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