The New MedicarePrescription Drug Coverage

What You Need to Know

ContentsMedicare Prescription Drug Coverage 1

How Does Medicare Prescription Drug Coverage Work? 2Important Dates to Remember 2

How much will Medicare prescription drug coverage cost me and what will I get in return? 3

What are Medicare drug plans and how do they work? 6

Making a Decision About Medicare PrescriptionDrug Coverage 7Do I really need prescription drug coverage now? 7

Can I wait and sign up for Medicare drug coverage later when Ineed it? 7

What if I already have prescription drug coverage or discounts? 8

Decisions, decisions—let’s look at some choicespeople can make 11

Choosing a Medicare Prescription Drug Plan 15

Joining a Medicare Prescription Drug Plan 17Extra Help for People with Limited Incomes 18

How can I avoid being scammed? 20

Where to Go for More Help 21

Key Words and Definitions 22

Copyright ©2005 AARP.

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Medicare will soon offer insurance cov-erage to help people pay for prescriptiondrugs. The new program, known asMedicare Part D, will start January 1, 2006.

This new program for getting drug cov-erage is different from the way most peoplenow get coverage for other health servicesunder Medicare. Because it’s new, it mayseem strange at first. But this booklet willhelp you understand it and help youthrough the decisions you have to make.

These are some things you need toknow right away:

> Everyone on Medicare can get drugcoverage. No one can be denied forhealth reasons or level of income.

> The program is voluntary. You don’thave to sign up. You may not need to ifyou already have good drug coveragefrom elsewhere.

> There is no single Medicare drug plan.To get coverage, you must enroll in oneof the private drug plans Medicare hasapproved.

> If you have a limited income, Medicarewill pay almost all your drug costs. (Tolearn more, see “Extra Help for Peoplewith Limited Incomes,” page 18).

> If your drug costs are very high, aMedicare-approved plan will cover upto 95% of costs beyond a certain levelin any one year.

> Plans will vary, including what drugsare covered and how much you willhave to pay. So compare carefully.

> Medicare Part D drug coverage is notthe same as the Medicare-approveddrug discount cards available in 2004through 2005. That temporary programoffered only discounted prices. Thenew program is permanent and offersinsurance protection for drug costsnow and in the future.

Whatever your circumstances, it’s worthchecking out what Medicare drug coverageoffers. In this booklet you will learn:

> how Medicare prescription drug cov-erage works.

> how to decide if you need it.

> how to find help picking a Medicaredrug plan that meets your needs.

> how to sign up.

> where to go for help.

Medicare PrescriptionDrug Coverage

Extra HelpIf your income is limited (less than$14,355 a year for a single person or$19,245 for a married couple livingtogether in 2005) see “Extra Help forPeople with Limited Incomes,” page 18.This section describes Medicare’s specialprogram that gives full drug coveragewith low co-payments and low or nodeductible, and explains how to applyfor it. This extra help can greatly reducedrug costs for people who qualify.

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Anyone in Medicare can get the new drugcoverage, known as Medicare Part D. Being“in Medicare” means enrolled either inMedicare Part A (which covers hospital andsome home health care as well as skillednursing facility care) or Part B (doctor visitsand other outpatient care).

If you do not want Medicare drug cov-erage, you do not have to sign up for it. Butbe careful. If you don’t sign up when youfirst can, and later change your mind, youmay then have to pay more for it. (Seemore about this late penalty on page 7.)

To get Medicare drug coverage, youmust enroll in one of the private insuranceplans that Medicare has approved. Theplans will vary in the coverage they offerand the payments they require, so you willhave choices. But the overall value of eachpackage must be at least as good as the“standard” Medicare prescription drugbenefit, which is the minimum set by law.

How to pick a plan will be explainedfurther on in this booklet. First you needto know how the Medicare drug coverageworks.

How Does Medicare PrescriptionDrug Coverage Work?

Important Dates to Remember

October 1, 2005: Private insurersapproved by Medicare will start to sendpeople marketing information about theirdrug plans.

October 13, 2005: You can start comparingMedicare drug plans online atwww.medicare.gov or by calling 1-800-633-4227.

November 15, 2005: First day you can signup with a Medicare drug plan.

January 1, 2006: First day you can useMedicare’s drug coverage if you havealready joined a plan.

May 15, 2006: Last day you can join adrug plan without paying a penalty, unlessyou qualify for an exception. (People notyet on Medicare will be able to sign up fordrug coverage later when they first jointhe program.)

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The standard Medicare drug benefit offersinsurance that will pay some of your drugexpenses and will protect you against veryhigh costs. If you have additional drugcoverage—from an employer or a statepharmacy assistance program, forexample—this will reduce your out-of-pocket expenses more.

During a calendar year, here’s how thestandard plan works:

Monthly PremiumThe premium is the amount you pay eachmonth to a Medicare drug plan sponsor topurchase drug coverage. The actualamount will depend on which plansponsor you choose. The average premiumfor standard drug coverage in 2006 isexpected to be about $32. But some planswill charge more and some less.

This premium will be in addition toyour monthly premium for Medicare PartB. You can choose to have the drug pre-mium taken out of your Social Securitycheck or pay it directly to your Medicaredrug plan sponsor. Each person must paya premium as an individual. There are nodiscounts for married couples.

Annual DeductibleThe deductible is the amount you have tospend on drugs at the beginning of the cal-endar year before your coverage kicks in.In 2006, the deductible can be no higherthan $250, though some plans may set alower limit.

Initial CoverageIn 2006, if you have signed up forMedicare’s prescription drug coverage, youwill pay a $250 deductible toward the costof your drugs. After you have paid thisdeductible, the plan will cover 75% of thenext $2,000 of your drug costs, and you willpay the remaining 25%. In other words, theplan will cover $1,500 toward this amount,and you will pay $500. At this point, youwill have paid a total of $750—your $250deductible, plus the $500 just explained.

Coverage GapAfter the initial coverage limit describedabove, there is a gap in Medicare’s cov-erage (also known as the “donut hole”).This means that in 2006 you could pay upto an additional $2,850 before Medicare’scoverage continues. While you are in thiscoverage gap, the plan will pay nothingtoward your drug costs.

However, if you have extra coveragefrom a state program or elsewhere thatadds to Medicare’s, this may narrow oreliminate the gap. Some drug plans mayoffer similar extra coverage, probably for ahigher premium. If you have limitedincome and qualify for Extra Help, you willnot be affected by the coverage gap (see“Extra Help for People With LimitedIncomes,” page 18.)

Catastrophic CoverageIf you have drug expenses that go above thecoverage gap, the plan covers up to 95% ofthe rest of your prescription costs until theend of the calendar year. There is no limit to

How much will Medicare prescriptiondrug coverage cost me and what willI get in return?

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this coverage in any one year. It is called“catastrophic” because it is intended to pro-tect you against very high drug bills. Underthe standard drug benefit for 2006, cata-strophic coverage begins after you’ve spent$3,600 on drugs out-of-pocket over thecourse of the year, not including premiums.($3,600 = $250 deductible + $500 in copay-ments + $2,850 in the coverage gap.) At thislevel, you will pay only $2 a prescription forgeneric drugs and $5 a prescription forbrand name drugs, or 5% of the cost of eachprescription—whichever is higher.

Who tracks my out-of-pocket expenses inthe Medicare coverage gap? If you con-tinue to get drugs through your Medicaredrug plan during the gap, the plan willkeep track. If you buy any from elsewhere,you must send the receipts to your plan.But only drugs that are covered by yourplan will count toward the $3,600 out-of-

pocket maximum (unless your plan hasallowed you an exception for a drug itdoesn’t usually cover). Also, any drugsbought from Canada or other foreigncountries do not count. Once the max-imum is reached, your plan automaticallystarts your catastrophic coverage.

What if another plan pays for my drugsin the coverage gap? Whoever providesyour other drug insurance will work withyour Medicare drug plan to ensure thatyou receive the correct coverage. However,not all kinds of extra coverage counttowards the out-of-pocket maximum. Ifthey don’t, it means it will take longer toqualify for catastrophic coverage. Drugcosts that do count toward the out-of-pocket maximum include those that arepaid for by a family member and somestate pharmacy assistance programs.Those that do not count include costs

Note: Your premium (about $32 per month/$384 per year in 2006) is not included in what you pay asshown in the chart above.

Medicare Drug Benefit At-a-Glance (Calendar Year 2006)

Prescription DrugSpending—(if you have nodrug coverage other thanMedicare)

Medicare-Approved PlanPays

You Pay—(if you have nodrug coverage other thanMedicare)

$0-$250 $0 Up to $250 Deductible

$250-$2,25075% of drug costs—Up to $1,500

25% of drug costs—Up to $500

$2,250-$5,100 CoverageGap/Donut Hole

0% of drug costs—$0100% of drug costs—Up to $2,850

Subtotal: Up to $1,500 Up to $3,600 out-of-pocket

Over $5,100(Catastrophic Benefit)

95%5% or$2 copay/generic$5 copay/brand name

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paid by other insurance, including fromemployers, unions, workers compensationor any government programs such as vet-erans and military retiree benefits.

Can I delay reaching the Medicare cov-erage gap? Yes. Using lower-cost drugswill stretch your $2,000 initial coverage.Ask your doctor if a generic drug or lower-cost brand name drug would work just aswell for you as the one you now take.

Using these kinds of drugs could alsoreduce your copayments.

The chart on the previous page andbelow show the relationship of your drugexpenses and Medicare prescription drugcoverage. They describe only the standardcoverage. Medicare drug plans may offersomething different, but they must have atleast the same overall value.

Note: Premiums not included.* If you have no other prescription drug coverage.

Your prescription drug spending*

Over $5,100 95%5%

100%

75%25%

100%

Catastophic benefit

You Pay

Medicare-Approved Plan Pays

$2,250–$5,100 Coverage gap

$250–$2,250

0–$250 Deductible

Up to $3,600out-of-pocketspending

To get Medicare drug coverage, you mustenroll in one of the private plans thatMedicare has approved. A wide range ofplans will be offered. Some will operatenationally, others only in certain regions ofthe country. You will be able to comparedetails of each plan available in your area,starting October 13, 2005.

Broadly, there are two kinds ofMedicare plans offering drug coverage:

> A “stand-alone” plan that offers onlyprescription drug coverage. This typemay suit people who wish to stay in (orchange to) the traditional Medicare fee-for-service program for their otherhealth care coverage.

> A Medicare Health Plan that offerscomprehensive coverage for medicalcare plus coverage for prescriptiondrugs. This type may suit people whoprefer managed care.

Medicare Health Plans are alternatives tothe traditional Medicare program. Theyhave been in Medicare for several years andused to be known as Medicare+Choice plans(or Part C of the Medicare program). Nowthey are known as Medicare Advantageplans or just Medicare Health Plans.

Among the different kinds of healthplans are: Health Maintenance Organi-zation (HMO), Preferred ProviderOrganization (PPO), Point of Service (POS)plan, private fee-for-service (PFFS). Mostare variations of managed care. In some,you may use doctors only from the plan’snetwork—that is, doctors who have a con-tract with the plan. In others, you can alsochoose doctors from outside the network,

but you’ll likely pay more to do so. Starting January 1, 2006, all Medicare

Health Plans (except PFFSs) must offer atleast one option that includes prescriptiondrug coverage. If you select a PFFS Planthat does not include drug coverage, youcan choose to get drug coverage separatelyfrom a stand-alone Medicare drug plan.

There will be a lot of variations amongthe plans in the drug coverage they offer.By law, it must be at least as good as thestandard Medicare coverage in overallvalue. But there will be differences in thepremiums and copayments they charge,which drugs they cover, what prices theycharge for drugs, and which pharmaciesthey use. Those differences are importantto know when you want to choose a plan(see page 15).

If you sign up for a plan, you’ll receive itsprescription drug card. When you need tofill a prescription, you will show the card atthe pharmacy (or send its number to a mailorder pharmacy service). The pharmacistwill use the card to access your informationelectronically. That’s how the pharmacistwill know what to charge you—whether youstill have part of your deductible to pay,whether or not you have extra coverage thataffects what you will pay, what your copay-ment should be, and, finally, whether youare in Medicare’s coverage gap.

Now that you know how the new drugcoverage works, you need to make a deci-sion—sign up for it or not? Only you canmake this decision, but you need to thinkit through carefully. These are things toconsider.

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What are Medicare drug plans and how do they work?

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If you don’t take any medications rightnow, or need them only occasionally, you’relikely wondering if it’s worth signing up.After all, you’d have to pay the premiumseven if you didn’t need any prescriptions.

But you also need to think about thefuture. Like any insurance, drug coveragegives you protection against high drug

costs if and when you need it. Here aresome facts to consider. On average,someone age 75-79 will spend 25% moreon drugs than someone 65-69. Also, almostone in five people with Medicare is pro-jected to incur $5,000 or more in drugcosts during 2006.

You can. Medicare drug coverage is volun-tary, so you can sign up if you like or not atall. But there may be a financial penalty ifyou want to enroll later than the timewhen you were first eligible.

With some exceptions, the penalty forsigning up late is a higher premium—anextra 1% of the national average premiumfor each month (or 12% for each year) thatyou delay. The longer you wait to join up,the higher your premium will be. Forexample, if you delay eight years, you’llpay nearly double for the same coverage.The penalty adds up quickly, and you willhave to pay it for as long as you haveMedicare drug coverage.

If you are already on Medicare, the timeto sign up without incurring a penalty isbetween November 15, 2005 and May 15,2006. After this, most people won’t getanother chance until the next enrollment

period at the end of 2006. (People not yeton Medicare will be able to join a drugplan whenever they become eligible forMedicare.)

What if you don’t sign up for Medicaredrug coverage now because you alreadyhave coverage from an employer or someother source? If you someday lose that cov-erage, you won’t have to pay a late penaltyto join Medicare’s program—provided thatthe coverage you lost was at least as goodas Medicare’s, as explained below.

An example of how the latepenalty works:Jill is already in Medicare and eligible to joina Medicare prescription drug plan in May2006, but she doesn’t. In November 2008,she decides to sign up for coverage begin-ning in 2009. She is 31 months late inenrolling, which means she has to pay the

Making a Decision About MedicarePrescription Drug CoverageDo I really need prescription drugcoverage now?

Can I wait and sign up for Medicare drugcoverage later when I need it?

late penalty. Here’s what happens:

> By 2009, the average national premiumhas risen to (let’s say) $46 a month. Jill’slate enrollment penalty is computed at1% x 31 months x $46 which comes to$14.26 a month.

> So Jill must pay $14.26 in addition to theplan’s premium. In 2009, her monthly

premium is $60.26 instead of $46.

> As the average premium rises in future

years, so does the late penalty. In 2010,

the average premium is (say) $49, so

Jill’s late penalty will be 1% x 31

months x $49 which comes to $15.19.

Her total premium would be $64.19

($15.19 + $49).

People right now use many different waysto help pay for their prescription drugs.You need to consider how what you havenow may be affected by the new changesto Medicare, and how it compares withwhat you would get from Medicare drugcoverage.

Read this if you have drugcoverage from your current jobor a retiree benefitYour current or former employer or unionwill tell you if your present plan willchange because of Medicare’s new drugcoverage. These are their main options:

> They may continue to offer drug cov-erage as they do now. If so, check withyour former employer or union to seewhether your coverage is as good asMedicare’s.

> They may continue offering drug cov-erage through a new Medicare drugplan. You will need to enroll in this planto maintain your employer’s coverage.

> They may offer drug coverage that addsto Medicare’s, as some do for otherhealth benefits you receive. You will

need to enroll in a Medicare drug plan,but your employer will cover some orall of your out-of-pocket costs.

> They may drop your current drug cov-erage—maybe helping toward the costof your Medicare drug premium, orperhaps giving no help at all.

The Medicare drug law offers employerslarge federal subsidies to continue theircoverage. Recent surveys show that mostemployers are expected not to drop it.

How do I tell if my current coverage isbetter or worse than I could get fromMedicare? Your employer or union mustgive you this important information. Youshould receive written notice sayingwhether or not your coverage is “cred-itable”—that is, at least as good asMedicare’s. If you don’t receive this infor-mation by the end of October 2005, callthem and ask them to let you know inwriting if you have creditable coverage.Keep this written notice in a safe place sothat you can use it to document your cov-erage if you later decide to enroll in aMedicare prescription drug plan.

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What if I already have prescription drugcoverage or discounts?

9

What happens if my employer drops mycurrent drug coverage at some futuredate? You will then be able to enroll in aMedicare drug plan without incurring alate penalty—as long as the coverage youhad was “creditable” and you sign up for aMedicare plan within 63 days of losingyour previous coverage.

Read this if you have drugcoverage from a Medigap planSome Medigap insurance plans (alsoknown as Medicare SupplementalInsurance) help pay for prescription drugsand some do not.

If your Medigap plan does not coverdrugs, you can keep it unchanged. And ifyou now decide you’d like to have drugcoverage, you can also sign up for aMedicare drug plan.

Some Medigap plans do cover prescrip-tion drugs. You cannot have one of theseMedigap plans and a Medicare prescrip-tion drug plan. You must choose betweenthe two. However, you can decide to keepthe Medigap policy, but drop the prescrip-tion drug coverage. Then, you can enroll ina Medicare prescription drug plan.

Keep in mind:

> If you currently have Medigap, you can keep your Medigap drug coverage.But in future years if you change yourmind and enroll in a Medicare drugplan instead, you will likely pay a late penalty. That’s because very fewMedigap policies offer drug coveragethat is as good as Medicare’s.

> Starting in January 2006, no Medigappolicies with drug coverage will be sold.This means that no new people will beable to enroll in a Medigap plan’s drugbenefit. This could cause Medigap premiums to rise over time.

If you have a Medigap plan with prescrip-tion drug coverage, your Medigap insurermust send you a letter by mid-Novemberto tell you how your policy’s drug coveragecompares with Medicare’s. If you do notreceive this letter, call your Medigapinsurer and ask for it.

Read this if you have drugcoverage from your stateMedicaid programIf you get both Medicare and Medicaid, oryou get Supplemental Security Income, oryour state pays your Medicare premiums,you automatically qualify for extra help topay almost all of your drug costs.Beginning January 1, 2006, you will getyour drugs from Medicare instead ofMedicaid. (Note that the Medicaid pro-gram in your state may have a differentname—for example Med-Cal in California,TennCare in Tennessee.) To learn more, see“Extra Help for People with LimitedIncomes,” on page 18.

Read this if you get help nowfrom a state pharmacy assistanceprogramIf you are in a state-run pharmacy program(other than Medicaid) that helps you payfor prescription drugs, it may coordinatecoverage with the new Medicare drug cov-erage to give you even greater savings.Each state will decide how its program willwork with Medicare drug plans. You shouldcheck with your state program to find outwhat will happen. To learn more about theprogram, call your local Senior HealthInsurance Assistance Program (SHIP) oryour local Area Agency on Aging. See page21 for contact information.

Read this if you have veterans ormilitary retiree drug benefitsIf you feel that the drug coverage youreceive from the Veterans Administrationhealth care system meets your needs andyou decide not to join a Medicare drugplan now, you won’t have to pay a highermonthly premium for your Medicare drugplan if you join later. Military retirees andtheir dependents enrolled in the TriCaresenior pharmacy program can stay in it.TriCare’s drug benefit is considered “cred-itable” coverage. If you have a limitedincome that qualifies you for Medicare’sextra help in paying for drugs, see “ExtraHelp for People with Limited Incomes,”page 18.

Read this if you get drugs from a Manufacturer’s PatientAssistance ProgramIf you now get one or more of your drugsfree or at low cost from one of the assis-tance programs run by prescription drugmanufacturers, you may be able to con-tinue to do so as well as have Medicaredrug coverage—as long as you still qualifyfor the drug company’s program. You’llneed to check. Some companies may con-tinue providing drugs to people in Medicaredrug plans and some may not.

If you qualify for Medicare’s Extra Helpfor people on limited incomes, you maynot need to get drugs from a manufacturerany more. If you don’t qualify for extra help,but you sign up for Medicare’s standarddrug coverage, you may be able to con-tinue to get drugs from a manufacturer.

Read this if you now have aMedicare drug discount cardIf you signed up for a Medicare-approveddrug discount card, it is important toknow that this program will stop in 2006.

You will be able to continue using yourcard until May 15, 2006 or until you signup for Medicare drug coverage, whicheveris sooner. After that, you will not be ableto use it any more.

If you sign up for a Medicare prescrip-tion drug plan, you’ll receive that plan’sprescription drug card. Do not confuseyour plan’s prescription drug card with theMedicare-approved drug discount card youmay have signed up for in 2004 or 2005.

Read this if you now buy low-cost drugs from Canada or otherforeign countriesAlthough the practice is still illegal, manyAmericans have found relief from highU.S. prices by buying drugs from abroad,mainly Canada, where they usually costless. Many now wonder if continuing to doso would be less costly than signing up forMedicare drug coverage. Here are things toconsider:

> What if Canada does not allow drugs tobe exported? They haven’t so far, butCanadian pharmacists have comeunder heavy commercial and politicalpressure to stop selling to Americans.

> If you suddenly need very expensivedrugs in the future or your total costsbecome very high, Medicare’s cata-strophic coverage would give far greaterprotection than low foreign prices.

If you sign up for standard Medicare drugcoverage, your plan will not cover drugspurchased from abroad. You may pay lessfor drugs in the coverage gap by buyingfrom abroad, but they would not counttoward your out-of-pocket maximum thatqualifies you for catastrophic coverage ifyour drug costs become high.

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Here are some examples of how Medicareprescription drug plans can help peoplelike you in just the first year of the pro-gram. These examples are of people whohave no other drug coverage and do notqualify for Extra Help for people with limited incomes. They are based on a

standard Medicare prescription drug planwith an estimated monthly premium of$32 and annual deductible of $250 in 2006.Because individual plans can have dif-ferent coverage features, these calculationsmay not apply to all plans.

Decisions, decisions—let’s look at somechoices people can make

MariaMaria, a 67-year-old widow, earns a moderate income.She is generally healthy and she takes a few medica-tions. She pays about $2,000 per year for her prescrip-tion drugs (just over $160 a month). In 2006, Mariawould save $928.50 under the standard Medicare pre-scription drug coverage.

Maria’s Total Yearly Drug Costs in 2006

> Without Medicare prescription drug coverage: $2,000

> With Medicare prescription drug coverage, Mariapays $1,071.50Here’s how it works:Maria’s deductible is $250:

Once Maria has paid her $250 deductible, she willstill have $1,750 in drug costs in 2006. The plan will pay75% of this amount, or $1,312.50. Maria will pay theremaining 25% which is $437.50.

Don’t forget that Maria will also pay her monthlypremium ($32 per month) or about $384 a year:

With a Medicare prescription drug plan, the totalMaria will pay in 2006 is $1,071.50.

Compare that amount to the $2,000 Maria wouldhave paid without Medicare’s prescription drug cov-erage—she saved $928.50.

Maria Will Pay

$250.00(Amount paid so far) $250.00

+

$437.50(Amount paid so far) $687.50

+$384.00

$1,071.50

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EvanEvan has a chronic condition that he controls with medi-cine. He spends about $4,850 a year (just over $400 amonth) for his medicines. He will save quite a bit of moneyunder the standard Medicare plan in 2006. Let’s see how.

Evan’s Total Drug Costs in 2006

> Without Medicare prescription drug coverage: $4,850

> With Medicare prescription drug coverage, Evan pays$3,734.

Here’s how it works:Evan’s deductible is $250:

Once Evan has paid his $250 deductible, the cost of therest of his drugs for the year is $4,600. Medicare prescrip-tion drug coverage will pay 75% of his next $2,000, soMedicare prescription drug coverage pays $1,500. Evanpays the remaining 25% which is $500:

At this point Evan enters the Coverage Gap. He will stillhave $2,600 in drug costs this year. But Medicare prescrip-tion drug coverage will not pay any more of his drug costsunless he pays another $2,850. Evan will not reach thisamount in 2006. His drug coverage does not kick in againthis year, so he will pay $2,600 more himself.

Evan also pays his monthly premium ($32 per month),which comes to about $384 a year:

With Medicare prescription drug coverage, Evan’s totalpayment for his drugs is $3,734.

Compare that amount to the $4,850 Evan would havepaid without Medicare’s prescription drug coverage—hesaved $1,116.

Evan Will Pay

$250.00(Amount paid so far) $250.00

+

$500.00(Amount paid so far) $750.00

+

$2,600.00(Amount paid so far) $3,350.00

+$384.00

$3,734.00

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JuanJuan has a medical condition that requires regular treat-ment. To stay as healthy as possible, he takes many drugsto keep his condition under control. Each year, he spendsabout $7,800 ($650 a month) for medicines. He saves quitea bit of money under the standard Medicare prescriptiondrug plan in 2006.

Juan’s Total Drug Costs in 2006

> Without Medicare prescription drug coverage: $7,800

> With Medicare prescription drug coverage, Juan pays$4,179

Here’s how it works:Juan’s deductible is $250:

Once Juan has paid his $250 deductible, the cost for therest of his drugs for the year is $7,550. The plan will pay75% of his next $2,000 in prescription drug costs. Therefore,the plan pays $1,500 and Juan will pay the remaining 25%,or $500.

At this point, Juan falls into the Coverage Gap. Thismeans that Medicare prescription drug plan will not payany more of his drug costs until he pays the next $2,850.

So far, Juan has received $5,100 in drugs. He has paid$3,600 and the plan has paid $1,500. He still needs another$2,700 of medication this year. Because he is no longer inthe coverage gap, the plan will pay 95% of his remainingdrug costs or $2,565. He will only have to pay 5% of theremaining costs of his prescriptions, or $135.

Juan also pays his monthly premium ($32 per month) or$384 a year:

With Medicare prescription drug coverage, Juan will paya total of $4,119 for his prescriptions in 2006.

Compare that amount to the $7,800 Juan would havepaid without Medicare’s prescription drug coverage—hesaved $3,681.

Juan Will Pay

$250.00(Amount paid so far) $250.00

+

$500.00(Amount paid so far) $750.00

+

$2,850.00(Amount paid so far) $3,600.00

+

$135.00(Amount paid so far) $3,735.00

+$384.00

$4,119.00

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PamPam is in good health when she turns 68 years old in 2005.She has only $530 in yearly drug costs. Pam realizes that, ifshe stays healthy, she will actually pay more for Medicare pre-scription drug coverage than she might get back the first yearthat she is eligible. Pam has a choice to make. Her choice is tohold off enrolling in a Medicare prescription drug plan andpay a penalty on her premium if she decides to enroll later orto enroll now and have peace of mind that she will be cov-ered if her drug expenses increase in future years.

Pam’s Total Drug Costs in 2006

> Without Medicare prescription drug coverage: $530

> With Medicare prescription drug coverage, Pam pays$704.

Here’s how it works:Pam’s deductible is $250:

Once Pam has reached her $250 yearly deductible,Medicare will pay 75% of her costs for the next $2,000 thatshe spends for drugs. She will spend only $280 more beforethe end of the year. Medicare will pay 75% of this amount, or$210.00. Pam will pay 25% of this amount, or $70.

Pam also pays her monthly premium ($32 each month),which comes to about $384 a year:

With a Medicare prescription drug plan and prescriptiondrug coverage, Pam’s yearly out-of-pocket spending totals$704.00.

For the extra cost of $174, Pam decides to get Medicareprescription drug coverage when it is first offered. Althoughshe will pay more than just the cost of the prescriptions atfirst, she has peace of mind knowing that Medicare’s pre-scription drug coverage is insurance against rising drug costsin the future. And by signing up now, she will avoid having topay a penalty in the form of higher yearly premiums if shewaits to join later.

Compare that amount to the $530 Pam pays withoutMedicare’s prescription drug coverage—she pays $174 more.

Pam Will Pay

$250.00(Amount paid so far) $250.00

+

$70.00(Amount paid so far) $320.00

+$384.00

$704.00

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If you decide to get Medicare drug cov-erage, you’ll need to sign up for one of thedrug plans approved by Medicare. You willhave at least two different plans to choosefrom, and maybe many more, dependingon where you live. In most cases, any planyou choose for 2006 will be the one you’llhave to stay in for the entire year. So it isvery important to find the plan that bestmeets your needs.

How will I know what is beingoffered by the different drugplans?In October 2005, you will begin receivingmail from the Medicare-approved privatecompanies that will offer drug plans inyour area during 2006. They may also con-tact you by phone. Remember that eachcompany will promote only its own plans.To make a real choice, you need to com-pare them.

Beginning October 13, 2005, you cancompare drug plans online atwww.medicare.gov. Medicare’s website willallow you to compare the plans point bypoint, such as their premiums, copay-ments and which drugs they cover.

If you don’t have access to the Internet,you can get the same kind of informationby calling Medicare at 1-800-MEDICARE(1-800-633-4227). TTY users should call 1-877-486-2048. A customer representativewill send you printed versions of details ofall the plans that are available to you. Thisservice, too, will be available after October13, 2005.

Will a plan cover all thedrugs I take?Not necessarily. Each Medicare drug planhas a list of the prescription drugs it willcover. These lists are called formularies orpreferred drug lists. When comparingplans, it’s important to find the plans thatcover all or most of the drugs you take.

If the plan you are considering does notcover all your drugs, talk to your doctor tosee if your medicine can be switched toone that is in the plan. If not, talk to theplan sponsor about whether your specificmedical situation makes you eligible for anexception that pays for a drug not on theplan’s formulary. There are only a smallnumber of prescription drugs, such as theanti-anxiety benzodiazepines and weight-loss products, that Medicare plans cannotcurrently cover because they are notallowed to under the law.

All plans are required to have anappeals process. You may appeal yourplan’s decision not to cover one of yourdrugs if your doctor can show that it isspecifically necessary to your health.

It is possible for plans to change someof the drugs they cover during the year.Plans must provide you with informationabout these changes, if they apply to drugsyou currently use, at least 60 days inadvance.

Choosing a MedicarePrescription Drug Plan

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Where can I get my prescriptions filled?You must fill your prescriptions at a phar-macy that is in your drug plan’s network,except in special circumstances. Solooking at which pharmacies are used byeach plan available to you is importantwhen comparing them. Many plans willalso offer a mail order service that willdeliver drugs to your door.

What if I live in different statesduring a year?A plan that is available nationally willcover you throughout the United States. Ifa regional plan offers mail order services,your drugs can be sent to a differentaddress. You should make sure the planyou choose will allow you that option.

Who can help me make thesedecisions?By the fall of 2005, if you’re still uncertainwhether Medicare prescription drug cov-erage is right for you, or confused by thedrug plan choices you are offered, takeyour time. You don’t have to decide byNovember 15, 2005, the very first day theinitial enrollment period begins. You stillhave six months after that to enroll.

Your first resource is yourself. Start bymaking a list of all your prescription drugs.Beside each one, write the price you nowpay. You can use this list to figure out whatyou pay for your drugs over the course of ayear and how much you will save withMedicare coverage. You can also use it tocheck which Medicare drug plan formu-lary most closely matches the list of drugsyou take.

Your second resource is family or friends.If you don’t have access to the Internet, orare not familiar with searching for infor-mation online, ask a family member orfriend who can do it for you.

Published information and one-on-onehelp: For different kinds of expert informa-tion and advice, look at “Where to go forMore Help” on page 21.

Local groups: Churches, community cen-ters, senior groups and others in manyplaces will hold information sessions inthe fall. Watch for notices in local newspa-pers, newsletters and bulletin boards.

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If you’ve thought things through anddecided you want Medicare prescriptiondrug coverage, and you’ve chosen a plan thatsuits your needs, it’s very easy to sign up.

> You can enroll on the phone by callingMedicare at 1-800-633-4227.

> You can enroll online by going towww.medicare.gov.

> Or you can call the plan of your choicedirectly by phoning the number pro-vided on the plan sponsor’s marketingbrochure or located through its detailsposted on www.medicare.gov.

You can enroll at any time from November15, 2005 through May 15, 2006.

After May 15, 2006, most people who arealready in Medicare will not have anotheropportunity to enroll until the followingNovember and will be penalized for signingup late. There will be exceptions—for

example, if you move out of your plan’sservice area, or if you lose creditable drugcoverage from another source through nofault of your own.

People who are not yet eligible forMedicare, but will become eligible in orafter March 2006, will be able to enroll in adrug coverage plan during their initialenrollment period that extends for sevenmonths—three months before and threemonths after the month they become eligible for Medicare. Younger individualsreceiving disability insurance benefits mayalso enroll three months before and threemonths after they become initially entitledto Medicare.

Medicare will start covering your drugsat the beginning of the month after youenrolled in a Medicare drug plan. If yousign up by December 31, 2005, your cov-erage will start January 1, 2006.

Joining a MedicarePrescription Drug Plan

The new Medicare prescription drug pro-gram offers extra financial help for peoplewith limited incomes and assets. You mayqualify for this extra help if your income isbelow $14,355 a year (or $19,245 if you aremarried and living with your spouse—andmore if you have dependent children orgrandchildren living with you), and if yourassets are below $11,500 (or $23,000 if youare married). Your assets include thingslike bank accounts, stocks, bonds and lifeinsurance policies. They do not includethe house you live in, your cars and otherpersonal possessions such as your furni-ture or jewelry.

If you have very limited income, youwill have no coverage gap, will pay no pre-miums or deductibles, and will havecopayments for each prescription of $1 or$2 for generics and $3 or $5 for brand-name drugs. If you have slightly higherincome you will have no coverage gap, willpay a reduced monthly premium that willvary depending on your income and whereyou live, and a reduced deductible of $50 ayear. Your copayments will be 15 percentof the cost of each prescription.

You may already be receiving someform of government assistance that makesyou automatically eligible for the ExtraHelp—for example, Medicaid, a MedicareSavings Program that pays your Medicare

Part B premium, or SupplementalSecurity Income (SSI). If so, you will auto-matically be able to get extra help andneed not apply.

If you do not participate in one of thesegovernment programs but think you mayqualify for the Extra Help based on yourlimited income and assets, you will needto apply for it with the Social SecurityAdministration. You can apply on yourown or, if you prefer, someone else canhelp you. This includes a family member,friend, caregiver, legal representative,social worker or a counselor who helpspeople with health insurance issues. Theapplication can be made:

• By Mail—Get an application from theSocial Security Administration. Fill itout and mail it to the Social SecurityAdministration. If you are married,both you and your spouse must applyseparately. Send the application to:

Social Security AdministrationWilkes-Barre Data Operations CenterP.O. Box 1020Wilkes-Barre, PA 18767-9910

• By Phone—Call the Social SecurityAdministration at 1-800-772-1213 (TTY:1-800-325-0778). A Social Securityworker will complete the applicationwith you over the phone.

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Extra Help for People with Limited Incomes

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• By Internet—You may apply onlinethrough the Social SecurityAdministration’s website atwww.socialsecurity.gov. No signature isrequired.

• In Person—You may apply by going toyour local Social Security or Medicaidoffice, or to a nonprofit agency such asyour State Health Insurance AssistanceProgram (SHIP) where a counselor cangive you free personal help. (To findaddresses and phone numbers, see“Where To Go For More Help” onpage 21).

The Social Security Administration willinform you whether or not you qualify forthe Extra Help. If you do qualify, you willstill need to choose a Medicare prescrip-tion drug plan during the open enrollment

period, November 15, 2005 to May 15,2006. If you qualify and don’t choose aplan, you will be automatically enrolled inone.

If the Social Security Administrationdetermines that you are not eligible forExtra Help, you may appeal their decision.You can still enroll in a Medicare drug planto get the standard level of Medicare pre-scription drug coverage, even while thedecision about Extra Help is beingappealed.

To learn more about the Extra Help withpaying for Medicare’s drug coverage, seeAARP’s companion booklet The NewMedicare Prescription Drug Coverage:Extra Help for People With LimitedIncomes.

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Here are some things you can do to protectyourself against fraud:

Know what’s allowed: The companiesapproved by Medicare are allowed tomarket their prescription drug plans overthe telephone and by mail, but not door todoor. If anyone comes to your door unin-vited, it’s probably a scam.

Spot and avoid the scam: Scammers maypretend to be from a Medicare drug plansponsor to get your financial information.If anyone calls or shows up at your door,never give your Medicare ID number, bankaccount or credit card numbers or anyother personal details. If they ask for thisinformation, it’s probably a scam.

Check it out: If you get calls just to tell youabout a plan, you can ask the caller for thename of his or her company. Then callMedicare (1-800-633-4227) to see if thecompany is approved by Medicare in yourarea. If you’re interested in finding outmore about the company, ask Medicare forthe plan’s contact information. You can callthem yourself.

Report possible fraud: If you suspectfraud, report it. Call Medicare (at thenumber above). In your state, you can callyour state attorney general’s office or con-sumer protection agency.

How can I avoid being scammed?

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Medicare will give you more informationas the new prescription drug programstarts. Each October, new information willbe available. Fifteen days before theannual enrollment period, people who areon Medicare will get a list of plans in theirarea and a comparison of the coverageoptions of each plan. Use this informationto decide which plan meets your needs.

There are many resources you can use toget additional information and assistance.

> Medicare has a website(www.medicare.gov) and a toll-freetelephone number (1-800-MEDICARE,or 1-800-633-4227; or TTY 877-486-2048).

> If you prefer to get help in person,counseling programs can provide directassistance. To find a counseling pro-gram, contact your local State HealthInsurance Assistance Program (SHIP).You can contact your local SHIP pro-gram by going online towww.shiptalk.org and selecting yourstate. This will give you a website foryour state and a toll-free number to callwhere someone can help you.

> You may also want to contact your localArea Agency on Aging for more spe-cific information about your state. Tofind the closest location, call theAdministration on Aging’s EldercareLocator at 1-800-677-1116 or go onlineat www.eldercare.gov and follow thesteps on screen to find help with“Health Insurance Counseling.”

> Social Security has a website(www.socialsecurity.gov) and a toll-freenumber (1-800-772-1213 or TTY 800-325-0778) for questions aboutExtra Help for people with limitedincomes.

> AARP also has a website (www.aarp.org)and a toll-free number 1-888-OUR-AARP(1-888-687-2277) that can provide youwith additional information.

Where to Go for More Help

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Annual Enrollment Period—The period each year that you canenroll in or change to another drug plan to receive Medicareprescription drug coverage, typically November 15 toDecember 31 of each year.

Area Agency on Aging—Local agencies that coordinate andsupport a wide range of home- and community-based serv-ices, including information and referral, benefits counseling,home-delivered meals, transportation, employment services,senior centers, adult day care, and a long-term careombudsman program.

Copayment—A part of a prescription’s cost that you pay out ofyour pocket. A fixed amount for each prescription.

Coinsurance—A share of a prescription’s cost that you pay out ofyour pocket. The amount is a percentage of the price of the drug.

Coverage Gap—The stage in Medicare prescription drug coveragewhen you have to pay all of your own drug costs.

Creditable Coverage—Drug coverage offered by other plans, suchas a current or former employer or union, that gives you cov-erage at least as good as the standard Medicare prescriptiondrug coverage.

Deductible—The amount you must pay each year for your medi-cine or medical treatment before your insurance starts to payyour costs.

Donut Hole—Another term for the Coverage Gap.

Formulary—A list of drugs that are covered by a drug plan.

Initial Enrollment Period—The initial enrollment period for thosecurrently on Medicare is from November 15, 2005 to May 15,2006. For those newly eligible for Medicare in or after March2006, the initial enrollment period for Medicare prescriptiondrug coverage is three months before and three months afterthe month they turn 65.

Key Words and Definitions

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Late Enrollment Penalty—The extra amount you have to pay inpremiums if you decide not to enroll in a Medicare prescrip-tion drug plan when you first become eligible. The penalty is1% of the premium for each month you wait. This penaltyamount will continue every month as long as you are in aMedicare prescription drug plan.

Medicaid—A joint federal/state-funded program, run by yourstate, that provides help with medical expenses for families,older people, and people with disabilities. Note: the Medicaidprogram in your state may have another name.

Medicare Part A—The part of Medicare that primarily coversmuch of the cost of hospital care, home health, or a skillednursing facility.

Medicare Part B—The part of Medicare that covers most of thecost of your doctor visits, outpatient care, and other services.

Medicare Part C—Also known as Medicare Health Plans (formally,“Medicare+Choice” and “Medicare Advantage”). These areMedicare-approved private insurance plans, including HMOs,PPOs, private fee-for-service plans, and medical savingaccounts. These plans may or may not include prescriptiondrug coverage.

Medicare Part D—Also known as Medicare prescription drug cov-erage. This is Medicare’s new insurance coverage to helppeople in Medicare pay for their prescription drugs.

Medicare Prescription Drug Coverage—Another name forMedicare Part D.

Medicare Advantage—Another name for Medicare Part C.

Medicare+Choice—An earlier name for Medicare Part C.

Medicare Health Plans—A way to get Medicare coverage througha private health plan. Also known as Medicare Part C orMedicare Advantage.

Medicare Supplemental Insurance—Another name for Medigap.

Medigap—A specific type of insurance policy that supplementsthe coverage you receive from Medicare. Individuals withoutretiree or union health benefits sometimes buy these to insureagainst costs not covered by Medicare.

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Out-of-Pocket Spending—The amount of money that you pay foryour covered drugs from your own money. If you have insur-ance coverage for drugs, this is the amount you pay yourself(not including the amount your prescription drug company orthe plan pays).

Preferred Drug List—Another word for “formulary.”

Premium—The amount you pay each month to receive insurancecoverage.

State Health Insurance Assistance Program (SHIP)—A state pro-gram that offers one-on-one counseling and assistance topeople with Medicare and their families. The name for thisprogram may vary from state to state.

State Pharmacy Assistance Program (SPAP)—A state-run pro-gram, separate from Medicaid, that provides drug coverageand may coordinate that coverage with Medicare prescriptiondrug plans for maximum saving to eligible residents.

Total Drug Costs—The total amount paid for your medicines. Itincludes what you pay and also what Medicare pays.

AARP is a nonprofit, nonpartisan membershiporganization that helps people 50+ haveindependence, choice and control in ways that arebeneficial and affordable to them and society as awhole. We produce AARP The Magazine,published bimonthly; AARP Bulletin, our monthlynewspaper; AARP Segunda Juventud, ourbimonthly magazine in Spanish and English; NRTALive & Learn, our quarterly newsletter for 50+educators; and our website, www.aarp.org. AARPFoundation is an affiliated charity that providessecurity, protection, and empowerment to olderpersons in need with support from thousands ofvolunteers, donors, and sponsors. We have staffedoffices in all 50 states, the District of Columbia,Puerto Rico, and the U.S. Virgin Islands.

601 E Street, NWWashington, DC 20049

For more information about Medicare’s prescriptiondrug coverage, visit AARP’s website at www.aarp.org,

or call 1-888-OUR-AARP (1-888-687-2277).

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