SUBSECTION B OF THE REGULATIONS: ELIGIBILITY FOR AND ENROLLMENT IN MEDICARE PART D, THE DRUG BENEFIT

The benefit is voluntary, so most in Medicare will have to take steps to enroll by picking a plan and signing up. There are exceptions. People who are dual eligibles, those eligible for both Medicare and full Medicaid benefits, will be automatically enrolled through a special enrollment process (see Question 7). Additionally, it appears that individuals who are enrolled in Medicare Savings Programs (MSPs) will also be automatically enrolled (see Question 8).

Although individuals do not have to be enrolled in both Medicare Parts A and B, individuals who do not have both cannot enroll in Medicare Advantage (managed care) plans for their drug coverage (different drug coverage options for individuals are discussed in greater detail below).

Although not contained in the regulations, in the preamble, CMS indicates that there will be a special enrollment period for individuals who are residents of state mental institutions. Additional guidance will be issued on this.

The decision about whether to sign up is an individual one. However, there are a few rules that generally apply and a few items that individuals should consider when deciding whether to sign up or not.

• Dual Eligibles: People who are eligible for both Medicare and full Medicaid benefits should sign up. They automatically qualify for the low-income assistance that makes the Medicare drug benefit more comprehensive, and they do not have to pay an annual premium. It is particularly important that they take advantage of Medicare Part D, because Medicaid will stop paying for their prescription drugs on January 1, 2006. Individuals eligible for Medicare and full Medicaid benefits who do not enroll in the program should be automatically enrolled and assigned to a drug plan. However, they still need to understand their options for plan selection, as well as how to enroll in the event that they are inadvertently overlooked in the automatic enrollment process. (See Question 7 for a more detailed discussion of the special enrollment process for dual eligibles and Question 41 for a discussion of the low-income benefits.)
• Others Eligible for Low-Income Assistance: In addition to dual eligibles, others in Medicare may be eligible for added low-income help that makes the Medicare drug benefit less expensive and more comprehensive. In almost all cases, individuals who are eligible for low-income assistance under Medicare's drug benefit should also enroll in a plan. For most, low-income assistance will mean that there are either no or reduced monthly premiums and the benefit is more comprehensive. (See Questions 8 and 41 for a discussion of low-income enrollment and the low-income benefits.)
• Others in Medicare: For those who do not qualify for low-income help, the benefit is not free (there is a monthly premium) and coverage is not comprehensive, so the decision about whether to sign up may be more difficult. Individuals need to compare the Medicare benefit to any other coverage that they might have, such as employment-related retiree plans. For those who do not sign up, there may be late enrollment penalties unless they maintain drug coverage that Medicare has certified as "creditable." Creditable" coverage is coverage that Medicare considers to be equal to or of more value than the coverage offered under Medicare Part D's standard benefit. Sources of creditable coverage include state pharmacy assistance programs, the Federal Employee Health Benefits Program, the VA, and employment-related retiree plans. (Details on the standard benefit are outlined in Question 18. Questions 13 and 14 cover late enrollment penalties and creditable coverage.)

The process for enrolling in the drug benefit varies depending on whether or not someone is enrolled in a Medicare managed care plan. Enrollment forms can be completed by the individual or by his/her authorized representative.

• Individuals in Traditional Medicare: Individuals in traditional Medicare-those not in a Medicare managed plan-must enroll in a Medicare Prescription Drug Plan (PDP) operating in the area in which they live. Individuals should file enrollment forms directly with the plan they wish to sign up with. The regulations allow plans to use "other enrollment mechanisms," such as Internet enrollment, if the processes are approved by Medicare. Individuals do not have to reenroll every year-unless they disenroll from the plan or select another plan during the annual election period, they are automatically reenrolled in the same plan each year. 
• Individuals Enrolled in Medicare Advantage (MA) Plans: All individuals enrolled in Medicare managed care plans that provide drug coverage must get their drug coverage through those plans. They cannot enroll in stand-alone drug plans.

Plans notify the individual regarding enrollment determinations. Plans cannot discriminate based on health status, age, or ethnicity. Enrollment determinations cannot be appealed formally, but if enrollment is denied, the individual must receive information on how to contact the plan to discuss the enrollment determination. Reasons that enrollment could legitimately be denied include a determination that the individual is not eligible for Medicare's drug benefit or lives outside of the plan's service area.

For low-income beneficiaries or those with special health care needs, one-on-one counseling is the best approach to walking through the enrollment process. Advocates should work with their states and groups throughout the state to ensure adequate funding for outreach and counseling. This should include funding for State Health Insurance Assistance Program (SHIP) counselors, as well as other groups that work with people in Medicare.

Enrollment will be effective the first of the month after plan selection, but not sooner than January 1, 2006, or, for individuals who select a plan before they are eligible for Medicare, the first of the month after Medicare eligibility starts.

Dual eligibles not in a Medicare managed care plan will be assigned to a PDP; those in Medicare Advantage (MA) plans will be enrolled in the MA plan in their area that meets the low-income benchmark premium test (assuming that there is an MA plan that meets that test). Dual eligibles who select a plan with a higher premium will have to pay the difference between the low-income benchmark premium and the premium of the plan they select.

The transition of dual eligibles from Medicaid into Medicare represents a significant change in drug coverage for these individuals. The potential for confusion is enormous. There are several specific areas of concern:

• Some dual eligibles may be overlooked in the automatic enrollment process. For example, in many states, about 8% of enrollee addresses are incorrect because of moves, etc. For the enrollment process to work, CMS will need accurate information on each state's dual eligibles. States should already be working to make sure that they have the capacity to transfer current and accurate enrollment information to CMS. Education efforts for dual eligibles should also start soon so that individuals who are not automatically enrolled will know what to do.
• Many dual eligibles may find themselves enrolled in a plan that does not cover the drugs they currently take (see Questions 17, 18, and 19 for a discussion of Medicare Part D covered drugs and plan formularies). Dual eligibles can switch plans at any time, but some may find that no low-income plans in their area cover all the drugs they need. Dual eligibles will need help selecting the plans that best serve their needs and will need to understand their rights to access drugs not covered by the plan they are in (see Question 35 for a discussion of appeals to gain access to drugs not covered by a plan).
• Even with a smooth enrollment process, confusion at the pharmacy will be inevitable. Many dual eligibles will find that they have higher copayments than under Medicaid. Many may fear that other Medicaid benefits-like physician services-have also changed.

Advocates and other groups that assist dual eligibles should work together on outreach and education throughout 2005.

Many in Medicare are eligible for more limited Medicaid assistance through Medicare Savings Programs (MSPs). These individuals will be eligible for low-income assistance in the Medicare drug benefit. However, the regulations do not include a provision for automatically enrolling these individuals into a plan as they do for full dual eligibles.

While the regulations do not include a special enrollment processes for individuals who receive partial Medicaid assistance, the preamble to the regulations notes that CMS might be developing a "facilitated" enrollment process to ensure that these individuals, who would be eligible for special low-income assistance in Part D, are enrolled in a drug plan. The facilitated enrollment process is described in some detail. Individuals who have not enrolled in a Medicare drug plan by a certain date would be notified that their enrollment into a specific Medicare drug plan would be "facilitated."  Individuals who do not decline this facilitated enrollment or who do not elect another plan will automatically be enrolled in the plan to which they were preassigned.

No. Individuals remain enrolled in the plan they select unless one of the following occurs:

• They voluntarily disenroll from that plan;
• They enroll in another Medicare drug plan;
• They are involuntarily disenrolled by the plan;
• The plan is no longer offered in their area (then the individual is eligible for a "special enrollment period," discussed in Question 10); or
• They are dual eligibles, in which case CMS may switch them to another plan if the premium of the plan they are in goes up and exceeds the "low-income benchmark." 

(See Question 7 for a discussion of enrollment of dual eligibles.)

• Individuals who involuntarily lose "creditable" coverage-coverage that Medicare considers equal to or better than the Medicare Part D benefit. As long as someone has "creditable coverage," late enrollment penalties do not accrue for someone who chooses not to enroll in a Medicare drug plan. If someone loses "creditable coverage" or that coverage changes (for example, if an employer changes the benefits in a retiree drug plan and it no longer counts as "creditable"), that person could enroll in a drug plan during a Special Enrollment Period rather than having to wait until the annual election period. The option for taking advantage of Special Enrollment Periods does not apply to individuals who lose coverage because they did not pay their premiums (see Question 13 for a discussion of creditable coverage).
• Individuals who do not receive proper notice that their coverage has changed and is no longer "creditable."
• Enrollment errors.
• Individuals who disenroll from a Medicare managed care plan that was providing drug coverage. These individuals can enroll in a drug only plan (PDP) without having to wait for the election period.
• Cases where an individual's drug plan stops participating in Medicare or is no longer providing services in their area, or where an individual moves out of the service area of the plan in which they are enrolled.
• The drug plan makes a material misrepresentation or fails to provide benefits.

Individuals who are eligible for full benefits under both Medicare and Medicaid ("dual eligibles") can change plans at any time.

In all cases, to avoid late enrollment penalties, an individual cannot go more than two months (63 days) without either creditable coverage or drug coverage through Medicare. (See Question 13 for a discussion of late enrollment penalties.)

The dates and processes for Special Enrollment Periods will be in the manuals for the drug plans and in separate operational guidance that CMS will issue. This operational guidance may also list some additional circumstances where Special Enrollment Periods might apply.

Individuals can disenroll, or switch plans, during the annual election period, which is generally from November 15 to December 31. Exceptions to this are the special circumstances listed in Question 10 or cases where an individual is involuntarily disenrolled by the plan (see Question 12).

Plans will develop their own disenrollment processes, and CMS anticipates that this will initially be a paper process, so an individual will need to file directly with the plan. Secure electronic disenrollment may be allowed. Disenrollment processes will probably vary between plans but must be approved by CMS.

Plans are required to disenroll individuals under certain circumstances: they must disenroll individuals who are no longer living in the plan's service area (individuals must maintain a permanent address in the plan's service area) or those who make material misrepresentations to the plan. Drug plans also have the option of disenrolling individuals for non-payment of premiums or for disruptive behavior.

• Disenrollment for Not Paying Premiums:  A drug plan can disenroll individuals for failing to pay any monthly premium, as long as the plan provides "timely notice" and the plan can show that it made reasonable efforts to collect those premiums. The plan can also refuse future enrollment to people disenrolled for failing to pay premiums, unless the individual pays all back-premiums.
• Disenrollment for Disruptive Behavior: The regulations define "disruptive behavior" as behavior that "significantly interferes with" a plan's ability to provide services to the individual who is being disruptive or to other plan enrollees. Plans cannot disenroll individuals if the behavior is related to the use (or non-use) of medical services. The plan has to make "serious" efforts to resolve the problem, inform the individual of his or her rights to file a grievance, and document the behavior and the plan's efforts to correct the situation. Plans also have to make special accommodations for individuals suffering from mental or cognitive impairments. 

All requests to disenroll individuals for disruptive behavior must be submitted to CMS for approval. Plans can request permission from CMS to deny the individual future enrollment. CMS will approve or deny the request and specify conditions for future enrollment within 25 days. As part of this review, CMS will determine whether or not the individual should be allowed to enroll in another plan during a Special Enrollment Period (dual eligibles can always take advantage of the Special Enrollment Period). CMS reserves the right to deny requests for disenrollment made by "fallback" plans-plans that operate in areas that have limited drug plan availability (see Question 46).

CMS will be publishing guidance that covers involuntary disenrollment.

With regard to disenrollment for disruptive behavior, this section of the final regulations is much more consumer-friendly than the proposed regulations. Nevertheless, advocates should be prepared to both comment on the guidance, if there is an opportunity for public comment, and to monitor how involuntary disenrollment affects Medicare beneficiaries in their area. Involuntary disenrollment can mean not only a disruption in an individual's access to necessary medications, but it can also result in late enrollment penalties if the individual is not allowed to reenroll during a Special Enrollment Period.

Late penalties apply to all Medicare beneficiaries and last for the duration of their enrollment in Medicare Part D, although for individuals who qualify for added low-income assistance, penalty payments are greatly reduced (see Question 45). The preamble notes that there will be a process for individuals to apply directly to CMS for reconsideration of late penalties; penalties cannot be appealed with drug plans.

Late enrollment penalties apply to all in Medicare, including dual eligibles and others who qualify for low-income assistance, although penalties for those individuals will be substantially reduced (see Question 45). Penalties may be particularly devastating for lower-income individuals who do not qualify for added low-income help-they will have to pay the full late enrollment penalties.

CMS will be publishing guidance on late enrollment penalty calculation and application. We will not know how adequate CMS's reconsideration process is until further guidance is published or until the program gets underway.

"Creditable coverage" is drug coverage that CMS considers equal to or better than the Part D basic benefit. If someone has creditable coverage, they can avoid Medicare's late enrollment penalties for the drug benefit.

The regulations list several potential sources of creditable coverage in addition to Medicare Part D plans:

• State pharmacy assistance programs (SPAPs);
• Medicaid;
• The Department of Veterans Affairs (VA);
• Group health plans (including church plans);
• Federal and non-federal employment-related plans;
• Some Medigap policies;
• Tri-Care;
• Coverage through the Indian Health Service;
• Individual health insurance;
• State high-risk pools; and
• Coverage through PACE organizations.

Annually, before the Medicare Part D election period that starts November 15, these programs have to notify all enrollees and individuals about whether the coverage offered is "creditable." Organizations also have to provide information on coverage status upon request, if the coverage changes, and when a Medicare eligible individual seeks to enroll.

If an individual is not adequately informed of a change in coverage (i.e., coverage is no longer creditable), they can apply to CMS and, if they establish that notice was inadequate, can have the coverage counted as "creditable" for the purposes of calculating late enrollment penalties.

CMS will be establishing the "form and manner" that plans will have to notify enrollees of a change in coverage status.

How adequate these notices are will depend in large part on CMS's requirements. There is concern that if notices are not sufficiently frequent or do not include several different forms (direct mail, telephone, Internet), individuals may miss them, even if a plan meets all notice requirements.

Advocates should look for CMS's guidance on notice requirements and comment, if there is an opportunity for public comment.

The regulations do not specify all of the information that CMS will be providing. They do state that plans must provide information to CMS in a format and covering the content that CMS specifies in guidance it will publish. The regulations also require that the information plans provide be adequate for CMS to give those enrolled in Medicare sufficient information to make an informed choice between plan options.

CMS will be providing comparative information on at least the following plan components:

• Benefits and plan formularies;
• Premiums;
• Quality and performance (starting in years two or three of the program);
• Cost-sharing; and
• Results of consumer satisfaction surveys.

The preamble to the regulations states that Medicare will maintain a price comparison Web site that shows what someone could expect to pay at the pharmacy for a specific prescription, but the details are under development. CMS will maintain the 1-800-MEDICARE consumer information number. (See Question 18 for a discussion of the way the drug benefit might vary from plan to plan.)

From the regulations and preamble, it appears that CMS will be relying heavily on its Web site and 1-800 number. This is a cause for concern for several reasons.

• Many in Medicare, particularly those with low incomes, people with disabilities, or those in poor general health, may have a difficult time using the Web site (and may not have access to the Internet).
• The Web site and 1-800 number were very inadequate sources of consumer information during promotion of the discount card. In fact, a Government Accountability Office study found that the 1-800 number had a very high rate of incorrect answers.
• Quality data on the plans will not be available for several years.

Again, advocates, providers, and provider groups should prepare to supplement CMS's outreach efforts as much as they can. Consumer groups should consider ways to report on plan quality in the interim, since CMS data will not be available for several years.

• Engage in any discriminatory marketing, such as activities targeting certain neighborhoods or populations;
• Offer cash or other inducements for enrollment;
• Solicit door-to-door;
• Claim that they are endorsed or recommended by Medicare-plans can say that they are approved for participation in Medicare;
• Use providers, provider groups, or pharmacies to distribute materials or enroll individuals. Health care providers can only display information on a plan if they display similar information on all plans in the area.

Plans can engage in a variety of marketing activities, including telemarketing. CMS will be issuing guidance on plan marketing.

SUBSECTION C: BENEFITS AND BENEFICIARY PROTECTIONS

• Those FDA approved prescription drugs that must be covered by all states that provide Medicaid drug coverage and that are used for medically accepted indications;
• Vaccines;
• Insulin supplies; and
• Smoking cessation drugs (even though such drugs are currently an optional drug under Medicaid).

These are "Part D drugs."
Medicare Part D will not cover:

• Drugs that are optional under Medicaid (with the exception of smoking cessation agents) and
• Drugs covered under Medicare Parts A or B (largely drugs that individuals do not administer themselves--those that are administered in a hospital or under the supervision of a physician, in a doctor's office, dialysis center, or other health care setting).

The regulations also talk about "covered Part D drugs." Those are drugs that an individual's PDP will cover--PDPs do not have to cover all Part D drugs. Medicare Part D only pays for "covered Part D drugs." (See questions 18 and 19.)

Some drugs that most states cover through their Medicaid programs-such as benzodiazepines-will not be covered by Medicare Part D. States can continue to provide Medicaid coverage for non-Part D drugs and receive federal matching assistance.

CMS will be providing guidance on the relation between Medicare Parts B and D drugs.

The regulations specify a "basic benefit." That benefit is the only one available to those in Medicare with incomes over 150% of poverty ($14,355 for an individual in 2005-the number will be slightly higher in 2006) or those who have assets that make them ineligible for low-income assistance. (Individuals eligible for low-income assistance have different cost-sharing requirements and more comprehensive coverage-see Question 41.)

All plans that participate in Medicare Part D have to offer an option that is the basic benefit or a benefit of equal value to the basic benefit. They can offer more generous benefit options, too, but those options cannot cost Medicare more. If more generous benefit packages would cost Medicare more, the plan has to charge a higher monthly premium. The benefit options are outlined below.

The basic benefit includes the following components:

• A $250 deductible in 2006. This increases every year at a rate equal to the annual percent increase in Medicare Part D drug costs.
• After meeting the deductible, 25% cost-sharing (the individual pays 25%  of prescription costs) up to $2,250 in drug spending for the year (the "initial coverage limit"). The initial coverage limits increases annually at the same rate as Medicare Part D annual drug costs.
• After the initial coverage limit is reached, coverage stops for the rest of the year, unless an individual spends so much of their own money on prescription drugs that they reach the out-of-pocket threshold. In 2006, that happens when an individual's "true-out-of-pocket" spending on drugs (referred to as TrOOP in the legislation) is $3,600. The TrOOP-the amount of their own money that an individual has to spend on drugs to qualify for catastrophic coverage-increases annually at the same rate as Medicare Part D drug annual costs. This gap in coverage has been referred to as the "doughnut hole."
• Individuals who reach the annual TrOOP threshold have catastrophic coverage for the rest of the year. After qualifying for catastrophic coverage, an individual pays the greater of $2 for a generic and $5 for a brand-name drug (with that amount increasing annually) or 5% of the drug's price, whichever if higher.
• With every plan year, the benefit starts over again with a new deductible, new initial coverage limit, and new out-of-pocket threshold-all adjusted to account for drug inflation in the Medicare program.

Plans can provide alternative coverage-drug coverage that is actuarially equal to or better than the basic benefit. Changes to the basic benefit might include having different cost-sharing tiers for different types of drugs. For example, a plan could have 20% cost-sharing for generics, 25%st-sharing for preferred brands, and 30% cost-sharing for non-preferred brands.

There are restrictions on "alternative coverage" and the ways in which it can vary from the basic benefit: 

• The deductible cannot be different than the deductible in the basic benefit.
• Cost-sharing after catastrophic coverage is reached cannot exceed that specified in the basic benefit. 

Plans can also provide "enhanced alternative coverage"-more generous coverage. That can include coverage of non-Part D drugs, a reduced deductible, reduced cost-sharing, or an increased annual coverage limit. The enhanced coverage cannot be at any added cost to Medicare, so plans will have to charge a higher premium. 

Drug prices: Medicare drug plans have to provide enrollees with access to the plan's discounted price for the drugs the plan covers, even when the plan is not paying any benefit (such as after the initial coverage limit is met). Drug plans will negotiate directly with manufacturers to obtain price reductions. Drug plans will pass on a portion of the price reductions to enrollees, but the law and regulations do not require that plans pass on any specific amount of the price reductions they obtain.

Plans have to report their aggregate price reductions and the aggregate discounts passed on to enrollees to CMS. Information on specific drugs does not have to be reported.

The structure of the standard or "basic" benefit means that many in Medicare will still have high out-of-pocket costs and that those costs will rise every year, more than likely at a higher rate than inflation or Social Security benefits. As a result, over time, individuals will be allocating more and more of their money to drug costs.

This financial burden is made worse by the fact that the legislation does not contain adequate measures to keep drug prices low. The government cannot negotiate drug prices with manufacturers-that is left to the drug plans. And importation of lower-cost drugs from other countries is effectively blocked.

In most cases, only payments an individual makes are counted toward meeting the TrOOP to qualify for catastrophic coverage. Exceptions are payments made by charities, manufacturer patient assistance programs, state pharmacy assistance programs, or from Health Savings Accounts.

Payments from insurance or programs that receive federal funds will not be counted toward meeting an individual's out-of-pocket obligation. This includes payments from Medicaid, Medicaid Pharmacy Plus Waiver programs, the VA, Indian Health Services, retiree plans, and state and local indigent care programs. (There is an exception for ADAP and some other programs that will supplement Part D, which can help with the deductible for individuals who cannot afford it.) 

Payments for drug that are not covered by an individual's drug plan do not count towards the individual's out-of-pocket payments.

There's no requirement that plans pass any specific discount on to enrollees-plans can decide what discount level they will give enrollees on any specific drug. While plans will have to report aggregate costs and enrollee discounts to CMS, that level of reporting provides less of an opportunity for oversight than drug-specific reporting.

Drug plans do not have to cover all Part D drugs, and most probably won't. Each plan can have its own list of covered drugs, or formulary. Only drugs that a plan has on its formulary--or that the plan approves through an appeal and exception process--will be paid for by Medicare.

Formulary Requirements:

• On its formulary, each plan has to include two different drugs in every therapeutic class or category (as long as there are more than two FDA approved drugs available in that class or category). Drug classes and categories were developed by a group called U.S. Pharmacopoeia under a contract with CMS.
• Plans have to provide "adequate" access to the drugs most frequently used by those in Medicare.
• Plan formularies cannot be set up in any way that discriminates against any group of beneficiaries, whether by income, ethnicity, health status, or disease.

In its guidance on plan formularies, CMS has indicated that meeting the two-drug per class standard will be considered a "floor" for plans. In some clinical areas, such as drugs treating HIV/AIDS, it expects plans to include most FDA-approved drugs on their formularies. It will review formularies, including plans' placement of drugs into specific cost-sharing tiers, to make sure that benefit design does not discriminate against any classes of beneficiaries.

The regulations set out P&T committee requirements, which include:

• The majority of P&T committee members must be practicing physicians or pharmacists.
• At least one physician and one pharmacist have to be free of conflicts with the drug plan and drug manufacturers.
• At least one physician and one pharmacist have to be experts in the care of the elderly or people with disabilities.
• P&T committee members have to base their decisions on scientific evidence, standards of medical practice, and drug economic studies.

P&T Committee independence is critical to making sure that decisions are based on clinical evidence only and not driven by financial considerations. However, the requirement that such committees have only one independent physician and one pharmacist is inadequate given that plans could have very large committees.

It will be important for advocates to monitor the P&T Committee structures of plans in their area.

• Formularies cannot be changed from the beginning of the annual election period until 60 days after the end of the election period (generally, no changes in January and February). Exceptions to this policy can be made for additions of newly approved drugs, FDA approved changes in a drug's use, or removal of drugs pulled from the market by the FDA.
• For mid-year changes, the plans have to give physicians, pharmacists, and patients taking a drug at least 60 days' notice before taking a drug off of the formulary or changing its cost-sharing tier. If notice isn't provided 60 days in advance, patients have to be given a 60-day supply at the time of the first refill after the formulary change, along with information that the drug is no longer on formulary and instructions for filing an appeal (see Question 35).

In selecting a drug plan, an individual should look for a plan that covers all or most of the drugs he or she currently takes. However, that is still no guarantee that the plan will always cover those drugs or that it will cover drugs that he or she may need in the future.

Advocates should monitor the plans in their area to see how frequently formularies do change mid-year and should provide warning information on any plans that seem to have more frequent formulary changes than the norm.

22. What if an individual is currently taking a drug that is not on the formulary of the plan in which he or she enrolls?

For 2006, drug plans have to develop transition processes for individuals who enroll and are already taking a drug that is not on the plan's formulary.

The requirements for any transition program are not specified in the regulations but will be covered in subsequent CMS guidance. A transition process will be critical, particularly for individuals with special health care needs who may not be able to find a plan in their area that covers all of the drugs they currently take.

For drugs purchased by mail order, this notice is provided in the package with the delivery.

Yes. There are 34 regions nationally, and each territory is its own region. There must be two plans available in each region-that requirement can be met by a stand-alone drug plan and a Medicare Advantage managed care plan with a drug benefit. A plan operating in a region has to serve the entire region. Plans can serve multiple regions or operate nationally. If there are not enough plans in an area, the government will step in and provide a plan. (See Question 46 for a discussion of guaranteed access to plans.)

The law includes pharmacy access requirements that are the same as for TriCare, the health insurance program for active military personnel and their families.

Drug plans must include in their network enough retail pharmacies to meet the following access requirements:

• In urban areas, at least 90% of enrollees in a plan must, on average, live within two miles of a retail pharmacy;
• In suburban areas, the requirements is 90% of enrollees within five miles; and
• In rural areas, it is 70% of enrollees within 15 miles.
• Plans can count Indian Health Service, community health center, and rural health center pharmacies toward meeting the access requirement.
• Plans can supplement their retail network with mail-order pharmacies. Cost-sharing at mail order or other non-retail pharmacies can be lower.
• Plans have to contract with any pharmacy in the service area that is willing to accept the plan's contract.
• Plan's must provide "adequate" access to home infusion services and offer a standard contract to all long-term care pharmacies in the service areas.
• Plans must provide convenient access to long-term care pharmacies.
• All pharmacies have to be allowed to provide 90-day supplies.

Within their pharmacy networks, plans can have "preferred" pharmacies. Cost-sharing at preferred pharmacies can be lower. There is no requirement for access standards to preferred pharmacies.

Medicare Advantage plans, which may have their own pharmacies, are exempt from the access requirements.

• Plans should be monitored to make sure that "preferred" pharmacies are equally available to all areas in which the plans operate. In picking a plan, individuals will need to not only consider which pharmacies are in the network, but also whether they are "preferred" pharmacies.
• It may be difficult for long-term-care (LTC) pharmacies to meet the contracting requirements and therefore, LTC residents may not have access to network pharmacies. The regulations' requirements will mean that most LTC facilities will have to change their standard pharmacy contracting procedures. Most LTC facilities contract with a single pharmacy. Under the new drug law, they may need to contract with several because their usual pharmacy may not be the "network" pharmacy for all of the drug plans residents are enrolled in. It may be difficult for LTC facilities to coordinate with many pharmacies and accommodate the requirements of the different drug plans in which their residents may be enrolled.

• Service area;
• Premiums;
• Cost-sharing;
• Formulary;
• Participating pharmacies;
• How to get drugs at pharmacies that are out of the service area;
• Prior authorization requirements;
• Other strategies the plan uses to manage drug costs;
• Grievance and appeals information;
• Statistics on grievances and appeals filed with the plan; and
• Notice that the plan may terminate its contract with Medicare.

This information has to be provided by mail unless the enrollee elects to receive the information electronically. Plans have to maintain regular business hours to answer questions.

Every month that an individual uses the pharmacy benefit, he or she will receive a written explanation of benefits that will include information on the enrollee's status in relation to the annual deductible, the initial coverage limit, the annual out-of-pocket threshold, cumulative year-to-date drug spending, and any relevant formulary changes.

CMS is not requiring plans to provide service or information around the clock; instead, it is encouraging them to do so, at least with 24-hour clinical support lines.

Because of the benefit's complexity, a 24-hour support line is desirable. Advocates should encourage plans operating in their area to have 24-hour clinical support and should let beneficiaries know which plans do and which don't offer that service.

27. What happens if a plan leaves the area or pulls out of Medicare Part D?

Plans can voluntarily leave the program at the end of any contract year. Plans are required to give at least 90 days' notice to enrollees before the end of their contract. Individuals can enroll in another plan during the annual election period.

CMS can also terminate plan contracts for any one of a number of circumstances that violate CMS's requirements for plan operations. If CMS terminates the contract, the plan will provide enrollees with 30 days' notice. However, individuals in plans that are terminated mid-year are eligible for a Special Enrollment Period so that they do not have to go without drug coverage (see Question 10).
Stability of drug plan offerings is a concern. Although there should always be a plan available for those in Medicare in each region, changing from one plan to another-even during a standard enrollment period-can be disruptive. Historically, plan withdrawals have been all too common among Medicare managed care plans, so there could be a great deal of volatility in the first few years of the benefit. Advocates should be prepared to counsel beneficiaries who have to change plans.

SUBPART D: COST CONTROL AND QUALITY IMPROVEMENT REQUIREMENTS

CMS will also be conducting consumer satisfaction surveys and has the right to audit every plan in the program. 

Although plans are not required to be accredited by national accreditation organizations, if they do so, CMS will deem that they meet operating standards related to quality. 

While there is some CMS oversight, advocates will need to monitor plans to make sure that they are not overly aggressive in cost management at the expense of quality of care, particularly the stand-alone prescription drug plans. The PDPs are at-risk for the cost of drugs but not the cost of any other health care. As a result, there is a potential incentive for them to try primarily to reduce drug costs at the expense of managing for under-use.

SUBPART F: SUBMISSION OF BIDS AND MONTHLY PREMIUMS

Plans will submit bids to CMS with rates based on what the plan believes it will cost to provide specific drug benefit packages to a group of "average" Medicare beneficiaries. Bids will also include amounts for administrative costs and profits.

Plans are at financial risk for the cost of the drug benefit, but CMS will make "risk adjustment" payments to plans that have enrollees with high medical cost profiles.

For each plan benefit package offered, premiums must be the same for all enrollees in a region.

Premiums could be quite high. HHS estimates that premiums in 2006 will be about $37 a month ($444/year), but exact rates won't be known until the plans start submitting bids.

State pharmacy assistance programs can pay premiums on behalf of Medicare beneficiaries who cannot afford premium costs.

There is no limit on the number of full-risk plans that CMS will approve. In areas where there are not two bidders, CMS will accept bids from plans that only take on part of the risk of drug costs, or CMS may contract with a plan for administrative services only (see Question 46 on fallback plans). 

It will not be clear until plan bids are submitted whether there will be so many plans in an area that it will be difficult for beneficiaries to make a selection-or so few that access to specific drugs is diminished. It is likely that there will be wide regional variation in premium costs and plan options.

SUBPART I: COMPLIANCE WITH STATE LAWS AND PREEMPTION BY FEDERAL LAW

Each stand-alone drug plan has to be licensed by the state to bear insurance risk, or it must obtain a certificate from the state showing that it meets those licensing requirements. Medicare Advantage plans will already meet licensure requirements for that program.

CMS can waive the licensing requirement in a number of situations, including when a state's standards are stricter than CMS's or if a state is taking over 90 days to approve a licensing application.

CMS solvency standards will be published with the plan application forms and reporting requirements.

SUBPART J: COORDINATION WITH OTHER PRESCRIPTION DRUG COVERAGE

Medicare's Part D drug plan will always be the primary (or first) payer for the prescription drugs the plan covers, but plans will coordinate benefits with other payers.

• State Pharmacy Assistance Programs: Drug plans have to coordinate benefits with State Pharmacy Assistance Programs (SPAPs). These programs can cover or help with enrollees' premiums, deductibles, cost-sharing, and can pay for drugs during the gap in coverage ("doughnut hole"). SPAPs cannot auto-enroll individuals into Part D plans or recommend specific plans. Medicare drug plans can charge user fees to SPAPs for benefit coordination costs.
• Coordination with Other Plans: Drug plans can coordinate with other payers, including Medicaid programs, group heath plans (retiree plans), the Federal Employees Health Benefits Program, military and retired military health care, Indian Health Service, federally qualified health centers, and rural health centers. The amounts paid by these plans, unlike amounts paid by SPAPs, are NOT counted towards an individual's annual out-of-pocket threshold.

There is a real opportunity for State Pharmacy Assistance Programs (SPAPs) to supplement Medicare's drug benefit and ease the out-of-pocket burden on lower-income individuals in Medicare, particularly those who do not qualify for Medicare's low-income help. Amounts that SPAPs pay on drugs covered by a plan (for example, cost-sharing and amounts paid during the gap in coverage) will count towards an individual's out-of-pocket threshold. SPAPs can also cover drugs that are not covered by the individual's Medicare drug plans, but those will not count toward the out-of-pocket amount.

Advocates in states with SPAPs should work hard to see that those programs continue and coordinate with Part D plans. In states without SPAPs, advocates should work to see if there are opportunities to create an SPAP for the purpose of providing Medicare wrap-around coverage.

SUBPART M: GRIEVANCES AND APPEALS

For issues that do not involve plan decisions on whether or not to cover a drug, enrollees can file grievances.

Grievances have to be filed no more than 60 days after the event. The plan has to notify the enrollee of the determination related to the grievance at least 30 days after the grievance is received by the plan. However, that date can be extended by another 14 days at the enrollee's request or if the plan requires more information and obtaining that information is in the interest of the enrollee. 

Individuals have a right to file a grievance, or a complaint about the grievance handling or determination, with the local Quality Improvement Organization.

Plans have to give individuals information on grievance procedures when they enroll.

Standard Timeframe for Deciding Appeals: Plans must respond to appeals of coverage determinations when a drug was not provided (e.g., the pharmacy did not fill the prescription) within 72 hours after the request is made to the plan.

Expedited Appeals: If a physician requests an expedited determination because a delay in the decision would jeopardize the enrollee's health, that request must be granted, and plans must reach a decision on the appeal within 24 hours of the physician's request. Enrollees can also request expedited determinations, but plans will grant those requests based on their assessment of the enrollee's need for a speedier decision. If the expedited request is not granted, the appeal must still be decided in the 72-hour standard timeframe.

For appeals and coverage of non-formulary drugs, plans can determine what cost-sharing tier will be applied to the non-formulary drug.

There are serious gaps in consumers' appeals rights. For example, plans can place high-cost and unique biologics in a special cost-sharing tier and refuse to accept appeals for the cost-sharing applied. 

Plans must make decisions about payment appeals within 72 hours of the request. There are no appeals for expedited payments.

• Appeal with the Plan: First, individuals have the right to request a redetermination from their drug plan. These generally have to be filed within 60 days of receiving results from the initial appeal. Requests can be filed by the enrollee, his or her representative, or the prescribing physician. Redeterminations can be expedited. If a request to expedite the redetermination is made by the physician, it must be granted if the physician indicates that a delay will seriously jeopardize the life or health of the enrollee. If a request is made by the enrollee, the plan determines whether or not to expedite the appeal.

Expedited redeterminations must be decided within 72 hours. Otherwise, the timeframe for standard redeterminations is seven days. For redeterminations related to payments, if a payment denial is reversed, the plan must authorize payment within seven days and make payment within 30 days.

• Appeal with an Independent Review Entity: This is the second level of appeal. If an enrollee is dissatisfied with a plan's redetermination, he or she can file for review by an Independent Review Entity (IRE) no later than 60 days after the plan's redetermination. Timeframes for IRE determinations are the same as for redeterminations by the plan (72 hours for an expedited review, no more than seven days for a standard review). Requests for an expedited review must be granted if made by the prescribing physician and he or she indicates a delay would seriously jeopardize the enrollee's life or health. (Disputes are automatically forwarded to the IRE if a plan misses its deadlines to act on an enrollee's appeals request.)

If the IRE reverses a plan's decision, the plan has to act on the IRE determination no more than 24 hours (expedited) or 72 hours (standard) from the date it receives notice that its position was reversed. For IRE reversals related to payment decisions, the plan must authorize payment within 72 hours and make payment within 30 days from the date of notice.

• Appeal with an Administrative Law Judge: IRE decisions are binding unless the enrollee files for a hearing with an Administrative Law Judge (ALJ) within 60 days of the IRE's decision. For an enrollee to be granted an ALJ hearing, there must be a certain amount of money in controversy. The threshold amount required to be in controversy will be determined annually by the Secretary of HHS and will be published in the Federal Register. In calculating the amount in controversy, the projected value of the Part D drug is considered. For example, if the drug plan is refusing to pay for a $100 prescription and there will be an additional four refills during the year, the amount in controversy would be $500. Two or more enrollees in a household can consolidate appeals to meet the required amount. Requests can be made to expedite an ALJ hearing, and those requests will be granted or denied using the same criteria as those used for IRE hearings.

If the ALJ reverses a plan's decision, the plan has to act on the IRE determination no more than 24 hours (expedited) or 72 hours (standard) from the date it receives notice that its position was reversed. For reversals related to payment decisions, the plan must authorize payment within 72 hours and make payment within 30 days from the date of notice.

• Appeals with Medicare Appeals Council: Enrollees can appeal an unfavorable ALJ determination. If an enrollee is dissatisfied with the ALJ determination, or if the ALJ dismissed the case in lieu of scheduling a hearing, he or she can file for review by the Medicare Appeals Council. If the Medicare Appeals Council reverses the plan's decision, the timeframes for the plan to respond are the same as with IRE and ALJ determinations.
• Judicial Review: Finally, enrollees can request judicial review of an ALJ's decision if the Medicare Appeals Council denied the request for review and the amount in dispute meets the requirements set by the Secretary of HHS. Enrollees can also request judicial review of Medicare Advisory Council determinations.

The appeals process is complicated, although the timeframes for determination have been significantly shortened from those in the proposed rules.

SUBPART P: PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME INDIVIDUALS

There are several avenues through which an individual can be eligible for low-income help under Medicare Part D, and there are multiple benefit levels.

There are two ways to qualify for added help-either being a dual eligible or meeting income and asset tests. There are also different levels of assistance depending on income and assets:

• All dual eligibles (individuals eligible for both Medicare and full Medicaid benefits) are eligible for low-income help.
• Enrollees with incomes under 150% of poverty ($14,355 for an individual and $19,245 for a couple in 2005) and assets that do not exceed $10,000 for an individual or $20,000 for a couple in 2006 will also be eligible for low-income help, but the extent of that additional help will depend on income and assets. (Income eligibility will be calculated based on family size using the federal poverty level for the year.)

Individuals Eligible for the Full Low-Income Subsidy: Individuals will be eligible for full subsidy assistance (meaning that they will not have to pay any premiums) if they meet any of the following criteria:

• If individuals are full dual eligibles, recipients of SSI benefits, or eligible for partial Medicaid assistance in the state in which they live (eligible as a Qualified Medicare Beneficiary, Specified Low Income Medicare Beneficiary, or Qualifying Individual). These individuals will not have to apply for low-income assistance-CMS will notify them that they are deemed automatically eligible for up to one year (see Questions 7 and 8).
• If individuals have annual incomes under 135% of poverty ($12,919 for an individual and $17,320 for a couple in 2005) and assets that do not exceed three times the amount allowed for SSI eligibility ($6,000 for an individual and $9,000 for a couple). Income eligibility will be calculated based on family size using the federal poverty level for the year. The asset limit will increase annually at the same rate as the percent increase in the Consumer Price Index for all items, urban areas.

Individuals Eligible for Other Low-Income Help: Other individuals may be eligible for some low-income assistance and have all or part of their premiums paid. These are individuals with incomes under 150% of poverty ($14,355 for an individual and $19,245 for a couple in 2006) and assets that do not exceed $10,000 for an individual or $20,000 for a couple in 2006. The asset limit will increase every year by the same rate as the percent increase in the Consumer Price Index for all items, urban areas.

The premium subsidy amount is based on the low-income benchmark premium, which is the average premium for plans in the region. The premium subsidy will only apply to the basic benefit.

CMS will deem subsidy eligibility for up to a year. Individuals still need to report changes in financial circumstances to Medicaid or the Social Security Administration (SSA) as required by those programs.

Both state Medicaid agencies and the SSA will be making subsidy eligibility determinations (see Questions 42 and 50).

The low-income benefit is complex-there are multiple ways to qualify for added help and multiple benefit levels. Its complexity alone may dissuade many from applying. Additionally, applying for the subsidy and enrolling in a plan are two separate steps, making the process more difficult for the very groups that could most use help with drug costs.

While education is needed for all in Medicare, advocates should focus their efforts on informing low-income individuals (dual eligibles and others) about the benefit and the application process. Advocates should also seek increased state funding for SHIPS.

Individuals can start applying for the subsidy in July 2005 (see Question 50).

It will be essential for advocates to be prepared to assist low-income beneficiaries in understanding how the Medicare benefit will affect eligibility for other programs. Unlike the Medicare drug discount card program, there is no guarantee under Medicare Part D that receiving low-income assistance will not affect eligibility for other public programs. It is possible that low-income individuals who previously had no prescription drug coverage could have their food stamp or public housing benefits change because their medical expenses will be lower.

Some states may have asset determinations that conflict with SSA's determinations, potentially creating some confusion and inequities. For example, some states do not have asset tests for Medicaid eligibility. In one of those states, an individual with $10,090 in assets and very little income might qualify for Medicaid if he or she applied for the drug benefit through the state but would not be eligible for any low-income help if he or she applied through SSA.

The SSI definition is used for liquid assets and includes the following:

• Checking and savings accounts;
  Stocks and bonds;
• The cash surrender value of life insurance policies;
• IRAs; and
• Other retirement plans.

Burial plots are excluded, as are wedding bands and engagement rings (one per individual).

The asset test is liberal compared with that in the proposed regulations. Nevertheless, as with all programs that include an asset eligibility component, there is concern that many eligible individuals will be discouraged from applying because they will assume that their assets make them ineligible. Additionally, calculating the value of life insurance policies will be difficult for many.

The level of the premium and cost-sharing subsidy depend on the individual's Medicaid status, institutional status, and income and assets.

Dual eligibles who can receive the full low-income benefit:

• Pay no premium (the full premium is subsidized);
• Have no cost-sharing on drugs covered by their plan if they are institutionalized;
• Have a copayment of no more than $1 for a generic or drug on their plan's preferred drug list and $3 for other drugs covered by their plan if their income is 100% of poverty or less (Copayments will increase annually by the same amount as the Consumer Price Index. Plans can also opt to waive copayments entirely.);
• Have a copayment of no more than $2 for a generic or drug on their plan's preferred drug list and $5 for other drugs covered by their plan if their income is 135% of poverty or less (Copayments will increase annually by the same percent as the increase in drug spending by the Medicare program. Plans can waive these copayments entirely.);
• Have continuous coverage (no gaps in coverage during the year-no "doughnut hole");
• Have no copayments after their drug costs for the year reach the out-of-pocket threshold amount.

Non-dual eligibles with incomes under 135% of poverty who meet the asset requirements and are eligible for the full subsidy:

• Pay no premiums;
• Have a copayment of no more than $2 for a generic or drug on their plan's preferred drug list and $5 for other drugs covered by their plan (Copayments will increase annually by the same percent as the increase in drug spending by the Medicare program. Plans can waive these copayments entirely.);
• Have continuous coverage (no gaps in coverage during the year-no "doughnut hole").

Others eligible for some amount of low-income subsidy:

• Pay premiums based on a sliding scale:
  • Individuals with incomes of 135% of poverty or less are eligible for 100% premium subsidy (the individual pays no premium);
  • Individuals with incomes between 135-140% of poverty are eligible for 75% premium subsidy (the individual pays 25% of the premium);
  • Individuals with incomes between 140-145% of poverty are eligible for 50% premium subsidy (the individual pays 50% of the premium);
  • Individuals with incomes between 145-150% of poverty are eligible for 25% premium subsidy (the individual pays 75% of the premium)
• Have a $50 annual deductible in 2006 that increases annually based on the increase in Medicare drug spending;
• Have 15% cost-sharing after the annual deductible is met. Once drug spending reaches the annual out-of-pocket threshold for the year, there is continuous drug coverage;
• When drug spending reaches the out-of-pocket threshold, cost-sharing is reduced to no more than $2 for a generic or preferred drug and $5 for other drugs. This amount increases annually by a percent equal to the percent increase in Medicare drug spending.

In all cases, individuals have to comply with the formulary restrictions for the plans in which they enroll.

Pharmacists can waive copayments on a case-by-case basis-they cannot have a blanket policy of waiving copayments for individuals with the low-income benefit, nor can they advertise that they waive copayments.

The low-income benefit for individuals who are not dual eligibles will provide much needed assistance to many who lack drug coverage. Unfortunately, those who do not qualify for full subsidy support may have to pay a considerable amount in premiums and cost-sharing. For that group, out-of-pocket costs may rise considerably over time-much faster than the rate of inflation. State Pharmacy Assistance Programs can provide valuable wrap-around coverage for these individuals, if those programs are properly adjusted by state governments.

Awareness of the benefit will be critical if it is to help those who can benefit the most, again underscoring the need for education at the local level. For the Medicare discount card, neither CMS's education efforts nor the plans' marketing were sufficient to reach the large numbers who could have benefited from the low-income assistance in that program. It would be a mistake to rely too heavily on CMS and the participating health plans to adequately educate individuals about the drug benefit. 

Community-based organizations and SHIPS must play a large role in education and outreach.

Eligibility and Application Dates
Eligibility begins the first day of the month when the individual applies for the subsidy (or January 1, 2006 if they apply before the Medicare drug benefit begins). CMS may deem eligibility for up to a year.

CMS is working with states with the goal of accepting subsidy applications beginning July 1, 2005. This will allow individuals to pre-qualify for low-income assistance that would take effect as soon as they enroll in a drug plan.

The Application Process
SSA will develop an application and application process. States can use the SSA application form. States and SSA can determine the extent to which they will require individuals to provide financial documentation. CMS is anticipating a simplified process and is considering multiple application options (including mail, telephone, and Internet) to minimize both the burden on individuals and the need for individuals to produce financial documentation.

States must screen individuals for eligibility for Medicare Savings Programs if they apply for subsidy assistance through the state.

There are no requirements that either SSA or states make subsidy determinations within a specific timeframe. CMS assumes that states will process these applications at a pace consistent with their processing of Medicaid applications and will monitor states' performance. CMS will also publish operational guidance on these administrative issues.

The degree to which CMS will be able to simplify the application process will not be clear until SSA application processes are finalized. And the degree to which parallel state and SSA application systems work together will not be clear until subsidy application processing begins in the summer of 2005.

States will have considerable administrative burdens and reporting requirements. They will continue to process applications, make redeterminations, and handle appeals. They will also need to report that information to CMS, will need to coordinate with SSA offices, and will need to report to CMS monthly on the number of dual eligibles who are institutionalized.

Managing the application process will strain systems for many states. State Medicaid agencies should start preparing now  for accepting subsidy applications in the summer.

The President's fiscal year (FY) 2006 budget, which proposes major Medicaid program and administrative cuts, will make it increasingly difficult for states to do all that they need to both prepare for the Medicare drug benefit and to manage application processes after the benefit starts.

• For individuals who apply through their state, redeterminations must be made at the same frequency as required under the state plan. The state's procedures will also be followed for any appeals related to eligibility determinations.
• For individuals who apply through the Social Security Office, the Commissioner of Social Security will determine the frequency of redeterminations and the processes for appeals.

The handling of reapplications and appeals of eligibility determinations will depend on where the individual applies. For individuals who apply through the state Medicaid agency, redeterminations and appeals are to be made by the state following the state's procedures. The SSA Commissioner will decide how to handle redeterminations and appeals for individuals who apply through SSA.

This dual avenue for applying will mean that individuals will experience different processes depending on where they apply. States' redetermination and appeals timing and processes may vary from SSA's.

Individuals will have to apply for the subsidy and also pick a plan. The exception is those individuals who will be assigned to a plan if they do not pick one (see Questions 7 and 8). Even so, individuals assigned to a plan have the option of picking a plan other than the one to which they are assigned. Only dual eligibles always have the option of changing plans throughout the year. Others need to wait for an annual election period.

See the concerns outlined for Question 39.

Additionally, note that even though CMS has indicated that future guidance will outline how individuals enrolled in MSPs will be assigned to a plan, the preamble to the regulations indicates that individuals enrolled in MSPs who are preassigned to a plan and who do not reject that preassignment by a certain date cannot change plans until the annual election period. Assuming that CMS does move forward with preassignment for MSPs, it will be important for these beneficiaries to understand how preassignment will operate and what it will mean for them.

Subsidy-eligible individuals have to pay 20% of the standard penalty for the first five years. After that, there are no more penalties.

Even at a greatly reduced level, late enrollment penalties could present a significant hardship to low-income individuals.

SUBPART Q: GUARANTEEING ACCESS-FALLBACK PLANS

Under the law, Medicare beneficiaries have "the right(s)...to a choice of at least two sources of qualified prescription drug coverage."

If fewer than two plans operate in an area, CMS can approve a "limited risk plan"-a plan that does not assume the full level of risk for drug costs. If there are still not enough plans, CMS has the authority to bid with what is referred to as a "fallback plan." These are plans that contract with CMS to provide administrative services only and do not have any financial risk for enrollee drug costs.

Fallback plans provide only the basic benefit or an equivalent benefit. These plans are expected to negotiate for lower drug prices and provide price discounts to enrollees.

Fallback plans submit bids for a three-year contract for areas where there are not at least two PDPs or at least a Medicare Advantage plan with drug benefits and a PDP. Organizations that serve as fallback plans cannot also participate in any risk plans for the three years that they operate as a fallback provider and for one year thereafter.

There is a concern that the requirements for fallback plans-and the restrictions on subsequent bidding-are so severe that fallback plans may not always be available. This situation could force individuals in some areas into Medicare Advantage plans (Medicare PPOs) if they want the drug benefit. This would require them to opt for a plan with a limited provider network for all of their medical care, which might not be the best option for them.

We will not know until plans submit their bids whether there will be a sufficient number of plans, whether fallback plans will be necessary, and whether any organizations will bid as fallback providers. CMS actuaries do not anticipate having to use fallback plans in any region.

SUBPART R: PAYMENT TO SPONSORS OF RETIREE DRUG PLANS

For purposes of calculating the subsidy, actuarial value will be based on the gross and net value of the benefit. The gross value is based on actual claims experience and drug use of Part D eligible participants. The net value is the gross value less the amount that individuals have to pay in premiums.

Retiree plan sponsors that offer multiple plans may meet the test of actuarial equivalence for each plan separately or by grouping all plans together.

There has been much concern that employers will have an incentive to reduce the value of the drug coverage they provide to retirees to a level that is no better than Medicare's basic benefit. Further, there is an even greater concern that the subsidy would provide a "windfall" to employers-employers could have a benefit equal to Medicare's basic benefit, but they could increase premiums for retirees to the point that retirees are essentially covering all costs.

The final regulations do not address all of these concerns. While the regulations require retiree plans to be of greater or equal value on both a gross and net basis (taking premium costs into consideration), giving employers the option of lumping plans together may allow an employer to receive a subsidy even though substantial numbers of retirees could be in plans that are not as good as the Medicare plan.

There is also considerable confusion over how much subsidy an employer can receive for a plan that does not offer catastrophic protection but instead offers some amount of "wrap around" or supplemental coverage. There is an urgent need for a simpler explanation of these provisions and a clarification of how much wrap around and supplemental coverage are required in order to qualify for the public subsidy. Various groups are seeking such clarification.

It is key, of course, that retirees know whether they are in a plan (which receives public subsidies) that is not actually as valuable as the total Medicare standard Part D plan. Unfortunately, the data retiree plans submit will not be public, and it will be difficult for beneficiaries and the public to question the subsidy application.

CMS intends to publish considerable additional guidance on this section. Until that guidance is released, it is impossible to assess the full degree to which this provision may erode retiree coverage or provide opportunities for employers to receive windfall payments.

SUBPART S: SPECIAL RULES FOR STATES

These payments, referred to as the "phased down state contributions" or  "clawback payments," will be based on a state's 2003 per capita expenditures for dual eligibles' outpatient drugs, including dispensing fees (drugs that are not covered by Part D are excluded, as are Indian Health Service and family planning service claims).

In 2006, states will pay back (on a per capita basis) 90% of the estimated costs per month. This will be phased down annually to 2015, when payments stabilize at 75%. The amount of the payment will be calculated using the base year amount adjusted by the state's federal medical assistance percentage, a growth factor, Medicaid drug rebate payments received in 2003, and the number of dual eligibles in the state. States will make payments monthly.

The base year calculation will penalize states that implemented aggressive and successful drug cost management programs in Medicaid after 2003. Their Medicare clawback costs will be calculated using higher base costs, thus eliminating any savings that the states might have enjoyed after 2003.

By July 1, 2005, states have to have subsidy application forms available and start helping individuals fill out those forms.

States have to develop systems for communicating enrollment information to CMS.

States may, but do not have to, require that income and assets be documented. States have the option of relying on self-declarations.

Advocates should make sure that the state screening process for MSPs includes a simple way to actually enroll in these programs. This is especially important because enrollment in an MSP may be the best way for an individual to qualify for the Part D Subsidy.

Advocates should encourage their state to rely on self-declaration for assets, etc., rather than requiring submission of financial documents, which would add administrative costs and discourage many eligible individuals from applying for low-income help.

CMS will develop a uniform application with criteria for determining resources and family size and will also issue operational guidance to states.