NEW YORK (CNNMoney.com) -- The federal government is mailing $250 Medicare rebate checks this week, but Vermont is asking its seniors to send the money back to the state.
The first wave of checks were mailed Thursday to about 80,000 people as the initial step in closing the gap in Medicare's prescription drug coverage.
But Vermont officials say that the 2,800 low-income seniors who have hit the so-called "donut hole" should return the money because the state's VPharm program already covers drug costs that fall into the gap.
Seniors get stuck in the donut hole if their prescription drugs cost too much to be paid for through basic Medicare coverage, but aren't expensive enough to qualify for catastrophic coverage.
"When [health reform] was first passed, it was hoped that [the government] would send the checks directly to the few state programs that provide this cost-wrapping benefit," said Susan Besio, director of the Office of Vermont Health Access (OVHA).
"However, it was determined this will not be the procedure, nor will the names of the people receiving checks be provided," Besio added.
What Vermont wants: OVHA will send a letter to VPharm participants next week to explain that the state has already covered their drug costs. The letter will also ask those who receive the $250 rebate to call a member services number for instructions on how to refund the money.
Vermont expects to recoup about $590,000 of the rebates, and the state included that savings in its budget this year.
If VPharm beneficiaries do not contact officials, Besio said, Vermont law allows the state to recover the funds by adding a $250 deductible to an individual's drug plan.
Tension between feds and states: The Obama administration has touted the prescription rebates as a major victory of health care reform. At a press conference, one official said closing the donut hole is "one of the biggest ways the new law is going to help seniors."
Nationwide, an estimated 4 million seniors will receive the rebates in 2010.
But the pushback from Vermont highlights the difficulty of implementing federal health reform law on the state level, when state governments may not agree with the mandates.
The government has said checks will be mailed monthly throughout the year as Medicare beneficiaries hit the donut hole. Those who qualify will receive a check within 45 days of reaching the coverage gap.
Darius Dale is a senior macro analyst with investment research firm Hedgeye Risk Management. More
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