No Relief: Low-Income Seniors and Medicare

The recent controversy about penalizing Medicare enrollees has overshadowed an even bigger story.

Article created by the The Century Foundation.

Amid all the controversy about whether older Americans who haven’t yet signed up for the Medicare drug benefit should owe a penalty, an even bigger story has been overshadowed: the drug benefit so far
isn’t working
for many low-income older and disabled Americans—the people who stand to gain the most from the program.

By late April, only about 1.7 million million low-income beneficiaries who qualify for special subsidies had signed up and been approved for the program. According to the Department of Health and Human Services, 3.2 million eligible Americans are not receiving the drug subsidies; Families USA, a non-profit advocacy group, estimates that 5.5 million older and disabled beneficiaries fall into this category. No matter which estimate is more accurate, most of the seniors who aren’t enrolled in the drug benefit almost certainly fall into this gap.

Low-income Medicare beneficiaries with incomes just above the poverty line can receive “Extra Help” subsidies that reduce or eliminate plan premiums and co-payments for drugs. Older Americans who qualify for these subsidies lower dramatically the cost of their prescription drugs. The Centers for Medicaid and Medicare Services, for instance, projected in 2005 that beneficiaries who received the subsidies would spend $170 out of pocket, compared to $1,122 for seniors who didn’t receive this assistance.

Sensibly, the administration has allowed these low-income seniors to enroll continuously after the May 15 th deadline and will waive any late enrollment penalties through 2006. It should go further and consider eliminating the asset test that is preventing the majority of seniors with low incomes from receiving the subsidies.

Holding assets of more than $11,500—which include those readily convertible to cash such as stocks, bonds, mutual funds, IRAs, or equity in real estate–disqualifies seniors for subsidies. An even lower limit applies for the most generous subsidies. Fewer than one in three Medicare beneficiaries who have applied have been approved. UCLA School of Public Health professor Thomas Rice estimates that over half of those who have been denied have failed to pass the asset test. Of these, the majority exceed the amount of allowable assets by less than $35,000. Moreover, the application materials include questions about excludable assets like burial plots and insurance policies that appear further to have confused potential qualifiers.

William Novelli, the CEO of AARP, wrote a letter in late April to CMS administrator Mark McClellan urging him to end the asset test, calling it “cumbersome and unnecessary.” McClellan thus far has demurred on this point, questioning whether his agency has the authority to waive the requirement and whether the application form is truly onerous.

It would be easy to let this issue slide because overall enrollment in the drug benefit has been substantial and because lower-income Americans are especially difficult to enroll in government programs. But it is important to follow through. The mechanism for automatic enrollment for low-income beneficiaries based on their tax returns is readily available. This group is greatly in need of financial protections and has the most pressing health needs. For that reason, making these subsidies available to needy Medicare beneficiaries was the main motive for those who supported the legislation containing the drug benefit despite its other manifest flaws. The issue should remain on the front burner.


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