Understanding the Low Income Subsidy for the Medicare Prescription Drug Benefit

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What's Happening with the new Medicare Prescription Drug Benefit?

The Epilepsy Foundation has been working with the Centers for Medicaid and Medicare Services about the implementation for each phase of the new prescription drug benefit mandated by the Medicare Modernization Act. This is the third part in our weekly Medicare updates with information about the Medicare prescription drug benefit.

Understanding the Low-Income Subsidy or "Extra Help Benefit" for the Medicare Prescription Drug Benefit

Beginning in June and extending through August 2005, the Social Security Administration (SSA) will be sending application forms in English and in Spanish to millions of people with limited incomes who may be eligible for extra help in paying for their prescription drug benefits under the new Medicare Prescription Drug Benefit. The applications will be sent out according to the last two digits of a beneficiary's social security number. Those who qualify will pay no or reduced premiums and deductibles, and low co-payments for prescriptions, depending on their income and assets. Beneficiaries whose incomes are below 150% of poverty (14,355/individual and $19,245/couple in 2005) and have limited assets below ($10,000/individual and $20,000 couple) will be eligible for the extra help (low income subsidy).

If approved for the extra help, these beneficiaries will avoid "the doughnut hole," which is the gap in the standard drug benefit that leaves up to $2,850 of annual drug costs uncovered. Beneficiaries who receive low-income assistance are projected to spend 83% less for their drugs under the Medicare benefit in 2006, on average, than they would have spent without the Medicare drug law (Mays et al., 2004). An estimated 14.4 million beneficiaries or 33% of the Medicare population will be eligible for this additional assistance.

To view a chart that explains the benefits below please visit the Kaiser Family Foundation website.

Who is Eligible for the Low-Income Subsidy "Extra Help?"

Auto-enrolled Beneficiaries - Do NOT need to apply:
Dual-eligibles - Individuals who receive full Medicaid benefits, dually-eligible for both Medicaid and Medicare Prescription Drug Benefit. Dual-eligibles will be auto-enrolled in a plan in mid-October 2005. Duals will be allowed to change their plan into a different regional plan of their choice each month if they are not satisfied with the plan that they are enrolled in. Dual–eligibles are divided into two different income categories which are both auto-enrolled, however the amount of their co-pays are slightly different.

A. Category One Dual-eligibles Income Level- Income no higher than $9,570 (single) or $12,830 (couple), no asset test.
How much will beneficiaries pay for drugs? Prescription drug co-pays will be $1 for generic and $3 for brand name, $0 if in nursing home. No co-pays after drug costs reach $5,100. No monthly premium. No annual deductible.

B. Category Two Dual-eligibles - Income no higher than $12,920 (single) or $17,321 (couple). Assets* less than $6,000 (single) and $9,000 couple.
How much will beneficiaries pay for drugs? Prescription drug co-pays will be $2 for generic and $5 for brand name. No co-pays after total drug costs reach $5,100. No monthly premium. No annual deductible.
Individuals with low-incomes who DO need to apply for extra help:

A. Individuals with low incomes but not dually-eligible - These beneficiaries must apply by filling out the SSA application or visit their state Medicaid office. These individuals will have income levels between $12,920-14,355 (single) or $17,321-19,245 (couple). Assets less than $10,000 (single) and $20,000 couple.
How much will beneficiaries pay for drugs? Prescription drug co-pays will be 15% of total costs up to $5,100 catastrophic limit. $2 co-pays for generic and $5 for brand name thereafter.

*Assets are resources such as cash, easily convertible stocks, bonds, savings and retirement accounts. Principal home, car and burial accounts are not counted as assets.

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