In the first part of this series, we explored a hypothetical situation in which a senior with a certain Medicare plan, which we're calling Plan 1, is forced to explore the option of switching to another plan, Plan 2. That's because the senior's doctor could add a new drug, known here as Drug B, which isn't covered under Plan 1. (Read the first part -- we promise it will all make sense.)
The possibility that the doctor may prescribe Drug B, makes the senior's decision far more difficult. Consider, for instance, that you, the hypothetical senior, decide to go with Plan 1 and that your doctor prescribes Drug B for you at the beginning of July. Under Plan 1, you would have to pay the full $200 monthly cost of Drug B for the remainder of the year, making your cost for Drug B $1,200 and your total prescription-drug costs $1,470. If you had decided to go with Plan 2, on the other hand, you would have had to pay only a $25 copayment for six months, making your net cost for Drug B just $150 and your total prescription-drug costs $750, a savings of almost 50% over Plan 1.
It's important to notice that you have absolutely no way to be sure that the plan you choose will pay you the best benefits under all circumstances. Although you can draw reasonable conclusions from your medical history and past expenses, there is always an element of uncertainty in your selection because the future may differ markedly from your past experience. As things eventually turn out, it may well be that you would have been better off under a different plan from the one you select. This does not mean, however, that you made an incorrect choice. In fact, it may be that selecting a more inclusive plan, like Plan 2 in the example, is the best choice even if it turns out that you don't need the expensive Drug B. Plan 2 effectively provides insurance against the high costs of Drug B, and the value of knowing those costs would be covered may be worth the added expense of the more inclusive plan.
Getting more information on drug plans
Even our overly simplistic and unrealistic example presented a dilemma that was hard to resolve. The reality is far more complicated. Often, more than just two plans are available, and the availability of multiple plans makes comparison and analysis extremely difficult. Seniors must also face the possibility of having to start taking additional drugs among the hundreds commonly prescribed. In fact, many seniors have a regular regimen of a dozen drugs or even more. And since the challenge of managing the medical effects of drugs increases exponentially with the number of drugs a person takes, trying to predict what changes in prescriptions will be necessary is a nearly impossible task.
The availability of generic drugs adds yet another wrinkle to the issue, since some plans may require the use of available generics even when a doctor specifically prescribes a brand-name formula.
Fortunately, Medicare's website offers valuable information about prescription-drug coverage, including a number of calculators and other tools to assist seniors in determining the amount that various plans will cover. The tools on the site require seniors to enter a list of all of the prescription drugs they currently use. Based on this list, the programs can then look through available plans that cover most or all of these drugs and determine whether the benefits of a given plan outweigh the plan's premium charges.
However, because not all seniors have computer access, and because some are unable or unwilling to use this technology to assist them with their decisions, it's difficult to have confidence that all seniors will gather enough information to make an informed decision about their coverage.
Seniors with extremely limited incomes and financial resources may be eligible for low-income assistance with their prescription-drug coverage. Current income limits are $14,700 for unmarried seniors and $19,800 for married seniors who live together. Seniors who support other family members living in their homes, live in Alaska or Hawaii, or still take in earned income from jobs may be eligible even if their income falls above the limit. Many other types of government benefits, such as food stamps, earned income tax credit payments, and housing assistance, are not included in calculating your total income.
In addition to the income limits, eligible seniors must not own assets over a certain resource limit. The current limit is $10,000 for unmarried seniors and $20,000 for married seniors who live together. Again, however, there are a number of items that do not count toward this limit. The most significant is a primary residence; if you own your home free and clear, none of its value will count toward the resource limit. Other exempt resources include vehicles, personal possessions, and burial plots.
Because there are so many exceptions to these general limitations, it's worth a close look at your personal finances to determine whether you would qualify for assistance. Even seniors who feel relatively financially comfortable may find themselves eligible for these benefits. If you do qualify, Social Security may pay for all or part of the premiums required for your Medicare Part D coverage, as well as annual deductible amounts and any required copayments under a given prescription drug plan. Social Security estimates that one out of three seniors will qualify for additional assistance and that the amount of savings for the average senior could be about $3,700 per year. Interested seniors should file an application with Social Security if they believe they meet the income requirements listed in the form's instructions. The application, along with other useful information, is available at the Social Security Administration's website.
One other reason to consider applying for assistance is that if you qualify, you may avoid certain penalties associated with deadlines for making decisions about your prescription-drug plan. Most seniors were required to choose a prescription-drug plan by May 15. However, those eligible for special assistance have a special extended enrollment period that runs to the end of 2006.
Medicare Part D prescription drug coverage is an extremely valuable benefit for seniors. By studying your options and understanding the choices you have, you can ensure that you make the most of the coverage, thereby helping to ensure your financial security throughout your golden years.
For part 1 of this article, see:
Fool contributor Dan Caplinger welcomes your feedback.
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