WEDNESDAY, Oct. 26, 2005 (HealthDay News) -- The number of seniors protected against formidably high drug costs will increase sharply under the new Medicare prescription drug program, a new analysis finds.

The study focused on the 1.5 million Medicare beneficiaries in the United States who spend more than $4,000 annually on prescription drugs and who lack coverage for so-called "catastrophic" drug costs. These people include individuals who do not have supplemental drug coverage or whose "medigap" insurance does not pay for prescription drugs.

In 2006, their ranks will drop to only 160,000, the study indicated, while their annual out-of-pocket spending will shrink to an estimated $762, down from the current $1,836. The number of low-income beneficiaries without this coverage will decline to 50,000 from just over 1 million before the introduction of the new drug benefits program, and their annual spending will drop to $158 from $1,837.

The analysis, prepared by PricewaterhouseCoopers in Washington, D.C., was released Wednesday by Medicare Today, a coalition whose members include pharmaceutical manufacturers, health insurers, hospitals, employer groups and nonprofits.

The report uses data from the U.S. Census Bureau, Medicare and other sources adjusted to reflect 2006 estimates by the Congressional Budget Office.

"There's no question of the impact this benefit will have on the lives of those who are dealing with serious illness and their accompanying prescription drug costs," said Mary R. Grealy, who chairs the Medicare Today partnership. "Our task is simply to get the word out."

But Robert M. Hayes, president of the Medicare Rights Center, a New York City-based information and consumer advocacy group, said the numbers are somewhat misleading.

"The point of a real Medicare drug benefit would be to assist folks who go without that medication because they cannot afford the $4,000," he said.

A beneficiary's drug costs under Medicare will depend on the plan chosen. Under the standard benefit design, there's a monthly premium, a $250 annual deductible and varying coinsurance amounts. Medicare pays 75 percent of a beneficiary's drug costs up to $2,500, while beneficiaries pick up 25 percent of the tab through coinsurance.

But here's the kicker: Many beneficiaries will encounter a gap in insurance coverage sometimes called the "doughnut hole" -- once their drug purchases for the year reach $2,500. At that point, seniors pay 100 percent of the cost of their drugs. Once a person's total drug costs reach $5,100 and he or she has reached an out-of-pocket maximum of $3,600, Medicare starts picking up 95 percent of the cost.

"Many people in dire need of catastrophic drug coverage will never get that coverage because they cannot afford to get through the infamous doughnut hole," Hayes said.

Plus, he added, people who buy their drugs in Canada to lower their out-of-pocket costs would not be able to apply those expenses toward their $3,600-a-year maximum.

Still, competition among drug benefit plans to attract seniors is likely to result in some creative benefit designs that reduce seniors' out-of-pocket spending, according to Grealy, who also serves as president of the Healthcare Leadership Council.

The report, Curtailing Catastrophe: Medicare's Rx for Catastrophic Drug Costs, also finds:

  • About one in three seniors do not have coverage for catastrophic drug costs. In 13 states, more than half of seniors lack that coverage.
  • The average senior who would spend more than $1,300 in annual out-of-pocket costs in 2006 without the new drug benefit will see their costs reduced by one-third, to less than $900 a year, as a result of the new benefit.
  • Low-income seniors will cut their expenses by more than half.

Beginning Nov. 15, Medicare beneficiaries are eligible to join the prescription drug program, whose benefits begin on Jan. 1, 2006.

More information

Medicare has more information on the new prescription drug program.

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