In late November Congress finally passed a law to provide Medicare coverage for prescription drugs. The law runs over 1100 pages long and very complex. No one person knows everything that's in it, and a lot of misinformation got spread around as the fight over its passage went on. It's been hard to get the facts, but we think we've got most of them here.

The short story is, people whose only health insurance is Medicare will have more prescription drug coverage than they had before. For people with other health insurance options besides Medicare, the picture is unclear. It may be that some people who are also eligible for Medicaid drug coverage could lose some or all of that coverage. But it's also possible to read the law as exempting such people from harm.

We'll explain all this, but before we do, there's a lot of stuff you'll need to know in order to understand the issues properly. We'll try not to bore you with this brief primer on government-financed medical insurance:

The first thing you should know is that any politician who says during the 2004 campaign that he/she helped get a wonderful new plan to provide Medicare prescription drug coverage will be lying. They may or may not have helped, but the plan is nothing to crow about. Compared to most typical employer-provided prescription plans, the Medicare plan is very weak.

The second thing you should know is something that most people with congenital disabilities do know but most other Americans don't: Medicaid is a far more comprehensive medical insurance system than Medicare, in all respects, not just prescription coverage. And the Medicaid that NY makes available to people with disabilities compares favorably with the best employer-based health plans. Even with the new prescription plan, Medicare likely won't cover a lot of things that NY Medicaid covers, and unlike NY Medicaid, it charges high premiums and co-pays for most of what it does cover. Especially important here is the fact that Medicaid pays for any prescription or non-prescription drug, and any equipment, that is medically necessary. Seniors would have been better off demanding that Medicaid coverage be expanded to them instead of asking for a Medicare drug benefit, but it's too late now.

The third thing you should know is that Medicare is not just a medical insurance program for elderly people--it's the only medical insurance available to millions of younger Americans who become permanently disabled after having held a job. Conversely, Medicaid is not just medical insurance for poor nondisabled people--it's the only medical insurance that provides lifetime coverage to millions of people with congenital disabilities for such things as personal attendants, wheelchairs and other assistive technology, and prescriptions, regardless of their ability to work.

There are big gaps in coverage between these groups, and if these programs were as simple as we've described, lots of people with disabilities would have no medical insurance at all. Fortunately, the old laws let these programs overlap to provide at least minimal coverage to most people who need it. For example, a person can be "dually eligible" for both programs. A young American who incurred a work disability or a senior citizen with a significant disability could ordinarily only get Medicare, unless they also had a very low income. But if their disability required supports that Medicare wouldn't pay for, such as ongoing personal assistance services outside the home, or most prescription drugs, they could "spend down" their assets to become eligible for Medicaid. ("Spend down" means they could hand over enough of their income to the Department of Social Services to put them below the Medicaid eligibility threshold.) Adults of working age with disabilities who had jobs and lived in a state like New York that had a Medicaid Buy-In might not have had to do the spend-down; instead they could pay a premium for Medicaid coverage. Some people who couldn't qualify for Medicaid could still get Medicaid to pay their premiums for Medicare's "Part B" program, which covers, to some extent, medical services not provided in a hospital. ("Part A" covers hospital costs and other stuff that most private insurance plans call "major medical", with no premium for that coverage as long as Medicare taxes were withheld from your pay when you were working.)

So what's in the new Medicare Law? Beginning in 2004, Medicare recipients can buy a "discount" card that may provide up to 15% off some prescription prices in some pharmacies. Very low-income people would get $600 of free prescriptions tacked onto the card.

Beginning in 2006, at minimum, there would be a standard, fully-government-funded, prescription plan available to all participants. We believe this plan would have a covered "formulary" with at least one drug from each "family" of drugs now approved for medical use in the US, though there could be more options--we haven't seen details. If private insurers find it profitable to do so, they could offer competing plans that participants could choose from. These plans might also have limited formularies. The law does not permit many advocates' preferred solution of having the federal government control drug costs by negotiating drug prices with manufacturers. Instead, conservatives say the "market" will control costs through competition--but the law offers billions of dollars in government subsidies to private insurers to encourage them to offer plans. So much for "market control". Some critics say this is a sneaky way to lure people out of the government-funded plan and then leave them hanging after subsidies end and the private coverage gets cut back. Other critics say there's no guarantee, given the past history of attempts to privatize Medicare coverage, that any providers will want to offer a plan even with the subsidies. By definition, Medicare is for people who have an increased risk of medical problems due to age, disability, or both--not an attractive group for any insurer. In any case, the law mandates that at least the basic standard plan will be there.

For people with incomes above 150% of the federal poverty level, and assets over $10,000 for an individual or $20,000 for a couple, there will be a $250 annual deductible and a $35/month premium for the drug plan. The plan would then pay 75% of annual drug costs up to $2,250, 0% of drug costs between $2,250 and $3,600 (the infamous "donut hole"), and 95% of drug costs over $3,600. If your income is under 135% of the federal poverty level and you have assets under $6,000 for an individual or $9,000 for a couple, the deductible, premium, and "donut hole" exclusion would not apply to you. Between 135% and 150% of poverty and assets under $10,000 for an individual or $20,000 for a couple, these subsidies would be reduced on a sliding scale.

Participation in any Medicare prescription drug coverage plan would allegedly be optional for all Medicare-eligible people. They could choose to enroll or not enroll. How this will actually work is unclear. One provision of the law says that dually-eligible people would automatically be enrolled in a randomly-chosen plan if they haven't chosen one by a certain date. However, that provision also states that this does not prevent anybody from declining to participate in any plan. Another provision says that Medicare will replace Medicaid as the primary drug coverage for people who are dually-eligible, and Medicaid coverage would not be available for any part of the cost of drugs covered by Medicare, but we aren't sure this can be applied to people who choose not to enroll in any Medicare drug plan. The best-case scenario seems to be that the government will try to sneak as many "dual eligibles" into the plan as it can, hoping they won't notice until it's too late--but if they do notice they can opt out. If so, then all dually-eligible people would be wise to pay attention and opt out. However, it's also possible to read the law as forcing all dually-eligible people into the Medicare plan. We just don't know.

The law does say that if a dually-eligible person participates in the Medicare drug plan but needs a drug that isn't covered by that plan, then Medicaid can pay for that drug. What drugs Medicaid does pay for is up to the individual states; while New York is very good about this, other states may not be.

As you can see from the means-tested coverage brackets, if dually-eligible people are forced into this plan, some of them could pay more money for less prescription coverage than they have today. This would not be good, especially for dually-eligible people who qualify for the Medicaid Buy-In, whose incomes would preclude any subsidies--though in most cases they would still be better off working than not working. It's also been alleged that people with higher incomes who can still get Medicaid to pay their Medicare Part B premiums would lose that support. It looks to us as though all references to "premium subsidies" in the new law apply only to the $35/month premium for the Medicare drug plan. We don't see any language that affects Medicaid subsidies for Part B premiums. Out-of-pocket share of Part B premiums would go up for people with incomes above $80,000. That's not good because means-testing Medicare will threaten the unity of its broad-based political support over time--but it doesn't affect Medicaid-eligible people. It's also important to remember that all of this only applies to people who are dually-eligible for Medicare and Medicaid. If you receive Medicaid but aren't Medicare eligible, nothing will change for you.

Earlier in the legislative process, a plan to impose a co-payment on Medicare-funded home health services was discussed; that did not make it into the final law. There is a cut in reimbursement to Medicare home health providers that could make such services harder to get, but no co-payment for recipients.

Also under discussion was a plan to have the federal Centers for Medicare and Medicaid Services pick a few major medical suppliers to decide which products, such as diabetes supplies, oxygen therapy, wheelchairs, and sleep surfaces, Medicare would pay for. Not only would this limit the variety of options available to people (and some types of equipment must be highly individualized to be effective), it would reduce or even eliminate market competition in some medical equipment industries, thereby driving up costs. We aren't sure if this was included in the law as passed.

Some critics say the new law will cause employers who offer prescription plans to their retirees to drop those plans. We haven't seen or heard an explanation of this claim; the law in fact provides financial incentives to employers to continue such plans--and anyway, few employers provide plans to retirees for free; typically retirees have to pay through the nose for such coverage and the Medicare plan may be a better deal for some of them. If such a plan is the result of collective bargaining, we doubt any Medicare law could change it.

The new law also contains "health savings accounts" and a pilot project to test competition between government- and privately-designed benefits packages in a few cities. These are very controversial measures. However, the "savings accounts" are essentially just a tax shelter for people with high medical insurance premiums, not directly related to Medicare at all. And in our experience, pilot studies typically have very little impact on public policy. Far more important to the future of Medicare will be the political climate when the results of those studies come in--a constant factor whenever any "reform" measure is on the table--and that's ten years from now. The only "research data" that most elected officials consider when making policy decisions is opinion poll and campaign contribution numbers. The pilot doesn't even start until 2010 and could be cancelled at any point before then.

There are some bright spots in this law, though for sure they are paltry and few. As we said, people whose only medical insurance is Medicare will have more prescription coverage than they do now--though we emphasize that it will be nowhere near as good as what employer-based plans typically offer. Also, Medicare will now pay for an initial physical exam for new beneficiaries, for screening for diabetes and heart disease, and for "coordinated treatment" for chronic illnesses. Medicaid payments to hospitals would be increased, as would Medicare fees for physicians.

Essentially what Congress did was create a very expensive plan--$400 billion over ten years--that yet somehow does not provide very much in the way of benefits. And they appear to have paid for this plan by cutting prescription coverage for the poorest of the poor--if not by outright mandate, then with a confusing, underhanded bait-and-switch.

Democratic Senate Minority Leader Tom Daschle says he'll introduce legislation to repeal some parts of the new law. Whether he'll be able to get any traction on that is unclear. Regardless, there is one last thing you should know about this: This was not a partisan Republican hatchet job. It was supported by many "moderate" Democrats in both houses of Congress, and the main reason the result is so inadequate is because those same Democrats could not muster the courage to oppose President Bush's two waves of irresponsibly massive tax cuts, so there is now no money in the federal coffers to pay for a good plan. If nothing else, this story should teach us that politics as usual--from either party--can't save us from ourselves.