Medicare Meds Made Easy The straight dope on the new drug provisions
By Peter Carbonara

(MONEY Magazine) – Is the just-passed Medicare overhaul an important first step toward affordable drug coverage for seniors--or a gold-plated giveaway to the pharmaceutical industry? Depends on who you ask, of course.

One thing is clear: The federal health program for people 65 and older will for the first time cover outpatient prescription drugs--not in direct payouts but via subsidies to HMOs and insurance companies.

Critics point out that the new plan neither limits the prices drug companies can charge nor permits Americans to import drugs available more cheaply abroad. So taxpayers will foot the full bill, estimated to be $400 billion over the next 10 years. As for the details of how it's all supposed to work, well, they're devilishly complex. Here, in crib-sheet fashion, is what you need to know.

--THE CARD Starting in spring 2004, seniors can buy (from a Medicare-subsidized insurer or HMO) a temporary drug card for about $30, entitling them to 10% to 25% discounts on prescriptions. Those with incomes of $12,000 or less will get $600 a year credited to their cards.

--THE DOUGHNUT HOLE In May 2006 the cards will be discontinued, and seniors who pay insurers a $420 annual premium, plus a $250 annual deductible, will get 75% off the price of prescriptions--until drug costs total more than $2,250. Coverage effectively stops from $2,251 to $5,100. That gap is the controversial "doughnut hole" (the $2,850 that has to come out of your own pocket before you get any more benefits). After $5,100, 95% of costs will be covered.

--THE ACCOUNT Starting immediately, Americans with high-deductible health insurance--not just seniors--can put pretax dollars into a "health savings account" administered by a bank or insurance company. (A single person with a health-plan deductible of $1,000 or more can put in up to $2,250 a year; a family with a deductible of $2,000 can put in $4,500.) As with the flexible spending accounts (FSAs) offered by many employers, distributions from the accounts are tax-exempt if they pay for unreimbursed drug or medical ex-penses, like deductibles. (Unlike FSAs, however, the Medicare version doesn't have an annual "use it or lose it" provision.)

--THE SLIDING SCALE Starting in 2007, Medicare beneficiaries with annual incomes over $80,000 ($160,000 for couples) will pay higher premiums than other beneficiaries for coverage under Part B of Medicare, which covers doctors' bills and outpatient treatment. The annual premium is currently $799. Under the new plan, that will be replaced by a sliding scale; the more you make over $80,000, the more you'll pay.

--THE EXPERIMENT Even further off in the future, in 2010, will come the launch of a six-year experiment under which Medicare will compete with private plans in up to six metropolitan areas around the country. This too is controversial: Proponents say it's a limited demonstration and will force on Medicare the financial discipline of competition. Opponents say it's a back-door effort to privatize the entire system.

--THE QUESTIONS There are plenty of reasons to be skeptical about this law: It's hard to understand; the marquee prescription-drug provision doesn't take effect until after the next election; and no one can say exactly how much it will all cost.

It's also not a closed chapter. The law is sure to be revisited as interest groups find parts they don't like. Case in point: The AARP, which supported the bill, has already declared its intention to close the doughnut hole. --PETER CARBONARA