WASHINGTON — The Bush administration marked another milestone Monday in its Medicare reform law, releasing draft versions of the rules that will determine exactly how a new prescription drug benefit will work when it takes effect Jan. 1, 2006.
Health and Human Services Secretary Tommy G. Thompson called the 1,956 pages of proposed regulations "another giant step forward" in implementing the Medicare reform law, which also uses billions of dollars in government funds to expand the role of managed-care plans and maintain employer-provided retiree health benefits.
The draft rules offered some new details about how the law will work but left other questions unanswered. They did not, for example, define the 10 to 50 geographic regions in which private preferred-provider organizations and standalone drug plans would operate, or specify exactly which prescription drugs must be covered by private plans.
The proposed regulations, open to public comment for 60 days, are largely intended to help potential participants in the program -- private managed-care plans, insurance companies, drug-benefit providers and large employers -- shape the final regulations and better understand how the program will work and what they will need to do to win government contracts.
Those groups were quick to praise the regulations, saying they would help all seniors save money on prescription drugs and encourage employers to continue providing drug coverage to 12 million retirees ages 65 and older. Previous analyses had predicted that the new benefit would lead employers to drop drug coverage for 2.8 million to 3.8 million retirees.
Medicare administrator Mark B. McClellan said the regulations proposed Monday would give employers new and "better, cheaper alternatives to dropping" retiree drug coverage. Under the new law, employers would receive a federal subsidy equal to 28% -- from $611 to $940 for each covered retiree -- of eligible drug coverage costs.
If they choose to do so, Medicare recipients with no existing drug coverage can sign up to participate in the new prescription drug program. Most seniors would pay monthly premiums of about $35 and an annual deductible of $250. The benefit would then cover 75% of drug costs up to $2,250; after that, seniors would pay 100% of their costs up to $3,600. Once total prescription expenditures reached $5,100 annually, Medicare would pick up 95% of the tab.
Under options proposed Monday, employer and union programs either could meet the Medicare standard or could offer drug coverage that improves on the standard benefit. In either case, the programs would receive Medicare subsidies.
McClellan declined Monday to discuss how the subsidies might affect the number of retirees who might lose coverage, saying only that the rules would increase overall support for retiree drug coverage.
But Ron Pollack, executive director of the consumer group Families USA, said the proposed regulations would allow employers who significantly reduce retiree drug coverage to "receive big, new tax breaks. This will cost the taxpayers tens of billions of dollars but will do very little to protect retirees," he said.
The administration estimates that after seniors have paid about $420 in premiums for the first year of the program, they would save an average of 53%, or $1,274, of their annual drug bill.
The new law requires Medicare to provide generous drug benefits to 11 million low-income beneficiaries. But the draft rules spell out for the first time how the government will determine who among the low-income senior and disabled Medicare recipients are eligible for the larger drug benefits.
McClellan said cash accounts and real estate holdings other than a primary residence will be included in the asset test applied to 4.5 million low-income seniors who are not poor enough to qualify for Medicaid. The value of family heirlooms, "wedding rings, microwaves and cars" will not be included, he said.
For poorer Americans, Medicare will cover an average 95% of drug costs for beneficiaries with limited assets and incomes of less than $12,568 per individual or $16,681 per couple. For seniors with assets of up to $10,000 per individual or $20,000 per couple and slightly higher incomes -- singles up to $13,965 and couples up to $17,735 -- Medicare will cover 85% of drug costs, on average.
The law waives premiums and deductibles for the 6.4 million beneficiaries with much lower incomes who qualify for the federal-state Medicaid program. They will be required only to make co-payments of as little as $1 or $3 for each prescription.