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Major provisions of Medicare bill

Published November 18, 2003

Details of the tentative agreement on a Medicare bill that would provide older Americans a prescription drug benefit and overhaul the government-run health care program for 40 million older and disabled Americans.

• Interim drug card:

In 2004 and 2005, older Americans would be eligible to purchase a discount card that the Bush administration estimates would yield savings of 15 percent or higher on drugs. Low-income seniors would receive an annual subsidy of $600 to defray drug costs further.

• Main drug benefit:

Beginning in 2006, Medicare beneficiaries could sign up for a stand-alone drug plan or join a private health plan that offers drug coverage. They would be charged a premium of $35 per month, or $420 per year. After meeting a $275 deductible, insurance would pay 75 percent of drug costs up to $2,200.

Coverage gap: No coverage for drug costs between $2,200 and $3,600 out of pocket.

Catastrophic coverage: When out-of-pocket spending reaches $3,600, insurance covers 95 percent of drug costs or requires a modest copayment.

Low-income subsidies: The premium, deductible and coverage gap would be waived for people earning up to $12,123 a year. To qualify for the subsidy, seniors could have no more than $6,000 in fluid assets. The subsidies would be phased out between $12,123 and roughly $13,500 in yearly income.

Retiree coverage: Would provide tax-free subsidies, perhaps worth as much as $70 billion, to employers who maintain drug coverage for retirees once Medicare drug benefit begins in 2006.

• Other changes:

Doctor and other out-of-hospital coverage (Medicare Part B):

Premium: By law, Medicare beneficiaries pay 25 percent of the Part B premium and the government pays the rest. Individuals with incomes greater than $80,000 would pay a larger premium. The size of their premium would increase on a sliding scale, topping out at 80 percent for people with incomes over $200,000.

Deductible: Would rise from $100 to $110 in 2005 and thereafter be indexed to the growth in Part B spending.

Role of private companies: Private firms would administer the drug benefit on a regional basis. Would provide $12 billion in subsidies to private insurers that choose to offer basic health insurance. Those include preferred provider organizations (PPOs), which encourage use of certain doctors but allow patients to go elsewhere if they pay extra, and private fee-for-service plans, which allow patients to see any doctor.

Rural health: Would spend about $25 billion to increase payments to rural hospitals and doctors, among others.

Generic drugs: Would speed generic drugs to the market by limiting ability of pharmaceutical companies to block cheaper equivalents (final details still to be worked out).

Drug importation from Canada: Would maintain the ban on importing prescription drugs from abroad. Would allow such drugs from Canada, but only if Department of Health and Human Services certifies safety, something the HHS has declined to do. Would authorize a study of safety issues.

Hospital payments: Would allow hospitals to avoid future cuts in payments by submitting quality data to the federal agency that runs the Medicare program. At the same time, would increase payments through Medicaid to hospitals that serve a large number of disadvantaged patients.

Physician payments: Would block planned cuts in physician payments in 2004 and 2005 and instead provide a 1.5 percent increase.

New benefits: Would cover an initial doctor's appointment for new Medicare beneficiaries and screening for diabetes and cardiovascular disease. Would provide benefits for coordinated care for people with chronic illnesses. Would increase payments for doctors administering mammograms in hope that more are given.

Health-related tax-savings accounts: Would allow people with high-deductible health insurance policies -- $1,000 a year for individuals, $2,000 for couples -- to shelter income from taxes. Investors would receive a tax deduction and pay no taxes on the investment and earnings upon withdrawal, provided the money is used for health expenses. Otherwise, a 10 percent penalty would apply.

Home health care: Would cut payments to home health agencies, but not require copayments from patients.

Cost containment: When general revenues constitute 45 percent of Medicare spending, Congress and the administration would have to review Medicare's finances.

Source: Congressional staff of negotiators.

Associated Press