Navigating the new Medicare drug benefit.

BACKGROUND: Medicare beneficiaries have had to wait 40 years for an outpatient prescription drug benefit. On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 that will provide at least limited drug coverage to all beneficiaries who sign up for it.

OBJECTIVE: The aim of this commentary is to provide a basic appreciation of the mechanics of the new drug benefit and an analysis of why it looks the way it does.

CONCLUSIONS: A combination of ideology and spending constraints led Congress to develop a benefit package that while generous for low-income beneficiaries with limited assets, has significant gaps in coverage for everyone else. After a transitional program of discount cards that will carry them through 2005, beneficiaries will have to choose their source of prescription benefits from private stand-alone drug plans, managed care organizations, or (if available to them) employer-sponsored plans. The structure of the benefit is a radical departure from the way other Medicare benefits are provided and paid for, and raises a number of important questions. Will sufficient numbers of risk-bearing private drug plans enroll in the program for competition to work? Will employers maintain retiree drug coverage? Will the new program stop the slide in Medicare managed care? How will beneficiaries react when the law is explained in ways they truly understand? The answers to these questions will help determine the success or failure of drug coverage under Medicare.