The American Journal of Managed Care January 2006
Who Will Be Denied Medicare Prescription Drug Subsidies Because of the Asset Test?
Objective: To determine the number and characteristics of Medicare beneficiaries who will be excluded from low-income prescription drug subsidies because they do not qualify under an asset test.
Study Design: Cross-sectional, using the US Census Bureau's Survey of Income and Program Participation (SIPP); results were based on interviews occurring between October 2002 and January 2003. The sample included 9278 Medicare beneficiaries, 2929 with incomes below 150% of the federal poverty level (FPL).
Methods: Using SIPP, each sample member's income was compared to the FPL. Income was adjusted to include only liquid assets and primary residences. The number of individuals excluded by the asset test and their characteristics and types of assets responsible were calculated.
Results: Of 13.97 million noninstitutionalized Medicare beneficiaries, 2.37 million (17%) with low incomes would be excluded from subsidized drug coverage due to the asset test. Compared to higher-income beneficiaries, the excluded individuals tended to be older, female, widowed, and living alone. Almost half of their assets were checking and savings accounts. Half of the individuals failing the test had assets less than $35 000 above the allowing thresholds.
Conclusions: Widows are disproportionately affected by the asset test. When a husband dies, income plummets but accumulated assets often exceed those allowed under Medicare legislation. During their working years Americans are encouraged to save for retirement, but by accumulating modest amounts of assets, these same people often will then not qualify for low-income drug subsidies. Modifying or eliminating the asset test would help protect individuals disadvantaged by low incomes who have modest amounts of asset holdings.
(Am J Manag Care. 2005;12:46-54)
Amidst fanfare and controversy, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 was signed into law by President George W. Bush in December of that year. The centerpiece of the legislation was coverage of outpatient prescription drugs, a benefit absent from Medicare during the program's first 40 years. This new drug coverage takes effect in January 2006.
The legislation provides voluntary, subsidized prescription drug coverage that can be obtained either from stand-alone insurance policies or through Medicare managed care plans. The specific style of benefit has been referred to as having a "doughnut hole" because during a given year, there may be a portion of expenditures for which no coverage is provided. This gap, combined with other cost-sharing features, means that many beneficiaries will still have to pay a sizeable portion of their prescription costs. An individual spending $5000 a year for covered drugs would pay a total of $3500 out-of-pocket, not including a premium averaging $420 per year in 2006.
A subsidy intended to provide assistance for low-income Medicare beneficiaries is the focus of this article. This subsidy is necessary because without it, drug coverage would not be affordable for such individuals and would be far more costly than is now the case for beneficiaries who are dually covered by Medicare and Medicaid. Once the prescription drug provisions are implemented in January 2006, individuals who are dually covered by Medicare and Medicaid will receive their drug benefits through the Medicare program rather than through Medicaid, as is currently the case.
To qualify for low-income subsidies, a beneficiary must meet specific income and asset thresholds. The low-income subsidies will offer substantial assistance in paying the Part D premium and cost sharing associated with drug coverage. The level of assistance will vary depending on an individual's income and assets. Individuals who meet the income threshold but whose assets exceed a specified limit will not qualify for low-income subsidies.
For example, a person who is not dually eligible for Medicare and Medicaid, and who has an income of less than 135% of the federal poverty level (FPL), will fail the test and thus will not be eligible for the low-income subsidies if he or she has countable assets exceeding $6000 (individual) or $9000 (couple). The definition of countable assets does not include the value of a house and automobiles, or household furnishings and possessions.
In this study, we addressed 3 key questions regarding the asset test:
- How many and what percentage of Medicare beneficiaries will be eligible for low-income prescription drug subsidies?
- How many and what percentage of Medicare beneficiaries are precluded from such subsidies because they do not qualify under the asset test? What types of assets are primarily responsible for precluding eligibility?
- What are the characteristics of individuals who are excluded from the subsidies because they do not qualify under the asset test? Do variations depend on age, sex, race, education, family composition, geographic location, supplemental health insurance status, or health status?
Low-income Subsidies Under the Law
The new Medicare drug benefit will go into effect on January 1, 2006. Certain Medicare beneficiaries are eligible for substantial low-income subsidies (Figure 1). The first group includes individuals who qualify automatically because they are eligible for Medicaid, Supplemental Security Income (SSI), the Qualified Medicare Beneficiaries (QMB) program, the Specified Low-Income Medicare Beneficiary (SLMB) program, or the Qualifying Individuals (QI) program; such individuals are referred to as "dually eligible" for Medicare and Medicaid.2 The second eligible group includes others who have incomes below 150% of the FPL and assets of less than $10 000 (individual) or $20 000 (couple). To provide context, the FPL in 2005 was $9570 for a single person, and $12 830 for a 2-person family.3
The subsidy a person qualifies for depends on his or her income and asset levels. Figure 1 and Table 1 provide labels for 3 different benefit levels (subsidy groups A, B, and C). The main data set used in this study, the Survey of Income and Program Participation (SIPP), is based on a sampling frame of the US civilian noninstitutionalized population. A fourth group–eligible individuals who are institutionalized–is not included because data limitations necessitated that this article focus on the noninstitutionalized population.
As shown in Figure 1, subsidy group A consists of dual eligibles with incomes less than 100% of the FPL. Subsidy group B comprises dually eligible individuals with incomes of more than 100% of the FPL and those not dually eligible but with incomes less than 135% of the FPL ($12 920/individual; $17 321/couple, in 2005) and assets of less than $6000 (individual) or $9000 (couple). Similarly, 2 subgroups of non-dually eligible individuals make up subsidy group C: those with incomes less than 135% of the FPL and assets between $6000 and $10 000 (individual) or $9000 and $20 000 (couple); and individuals with incomes between 135% and 150% of the FPL and assets less than $10 000 (individual) and $20 000 (couple). The following non-dually eligible individuals do not qualify for the subsidies: those with incomes of more than 150% of the FPL and those with assets exceeding $10 000 (individual) or $20 000 (couple).
Table 1 shows the drug benefit for each of the 3 subsidy groups in 2006. Persons in subsidy groups A and B will pay no premiums and will be responsible only for relatively small out-of-pocket copayments for each prescription they receive, varying from $1 to $2 for generic and $2 to $5 for brand name drugs. (The statute also requires that insurers apply the generic copayment levels to "preferred multiple-source drugs,"as specified but not defined in the statute.) Subsidy group C pays more, including a premium that is proportional to how close their income is to 135% of the FPL (vs 150%); 15% of drug spending between their $50 annual deductible and the $3600 out-of-pocket cost threshold (which could result in a maximum payment of about $530); and copayments of $2 (generic) or $5 (brand name) per prescription thereafter. No one receiving a low-income subsidy is subject to the doughnut hole of no coverage.
Impact of Eligibility on Potential Out-of-pocket Expenditures
Eligibility for low-income subsidies is likely to have a dramatic effect on out-of-pocket expenditures for prescription drugs. The Centers for Medicare & Medicaid Services (CMS) has estimated that on average, beneficiaries receiving the low-income subsidy would spend just $170 out-of-pocket in 2006, compared to $1122 without the subsidy–plus savings in premiums of up to $440/year.4(p4468)
Similarly, another study using an actuarial projection model concluded that near-poor persons who receive the low-income subsidies would pay far less out-of-pocket than individuals who do not qualify. Among individuals with incomes between 100% and 134% of the FPL, annual out-of-pocket costs for prescription drugs are expected to average $149 for persons receiving the subsidies, compared to $1086 for those not receiving them. The figures for beneficiaries with incomes between 135% and 149% of the FPL are $283 and $979, respectively.5
Congressional Budget Office Estimates of the Impact of the Asset Test on Eligibility for Low-income Subsidies
The Congressional Budget Office (CBO) has estimated how many otherwise qualified low-income beneficiaries will not receive the low-income prescription drug subsidies because they will fail the asset test. The CBO's estimates were published before the final regulations were issued by CMS. This point is particularly important because the final regulations are, in some ways, more generous than the previous asset test requirements used by state Medicaid programs and the federal SSI program. Whereas the other programs include as countable assets the value of the first automobile exceeding $4500, and the total value of a second car, the regulations do not include any value from automobiles. As a result, fewer beneficiaries are likely to be excluded.
In estimates published on November 20, 2003, just a few days before Congressional passage, CBO estimated that 1.8 million of the 15.1 Medicare beneficiaries with incomes below 150% of the FPL (12%) would be ineligible for the low-income subsidies because their assets were too high. This number includes:
- 0.4 million of the 7.7 million beneficiaries (5%) with incomes below the FPL;
- 0.4 million of the 3.6 million beneficiaries (11%) with incomes between 101% and 120% of the FPL;
- 0.5 million of the 2.0 million beneficiaries (25%) with incomes between 121% and 135% of the FPL;
- 0.5 million of the 1.8 million beneficiaries (28%) with incomes between 136% and 150% of the FLP.6
DATA AND METHODS
The data set used in this study was the SIPP, conducted by the US Census Bureau. The purpose of SIPP is "to provide accurate and comprehensive information about the income and program participation of individuals and households in the United States, and about the principal determinants of income and program participation."7 SIPP also collects information on individuals' assets, a necessity for the conduct of the present study. The sampling frame for SIPP includes only the noninstitutionalized population.
SIPP is a nationally representative panel survey (details available at www.bls.census.gov/sipp). To ensure adequate representation, it oversamples individuals with low incomes. We based our findings on data collected from the 2001 panel, whose members were interviewed 3 times annually over 3 years. Most of the data in this study were based on interviews that occurred between October 2002 and January 2003 and refer to the period September through December 2002.
The overall sample size in the SIPP file from which the data were extracted was 69 143 cases, of which 9278 were Medicare beneficiaries and 2929 had incomes below 150% of the FPL. The weighted counts were 37.6 million Medicare beneficiaries, 11.1 million of whom had incomes below 150% of the FPL.
Ascertaining the accuracy of the SIPP data is difficult. The SIPP does represent the US government's major effort to collect accurate data on income, assets, public program participation, and labor force issues (costing more than $30 million in 1998).8 Detailed comparisons have been conducted with respect to the accuracy of income data by comparing the SIPP with other data sources, notably the Current Population Survey.9 Although each survey has advantages, it is difficult for researchers to establish which is, in the aggregate, more accurate.