Medicare: Enrollment in Medicare Drug Plans

Medicare: Enrollment in Medicare Drug Plans

Order Code RL33136
CRS Report for Congress
Received through the CRS Web
Medicare: Enrollment in Medicare Drug Plans
Updated November 29, 2006
Jennifer O’Sullivan
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

Medicare: Enrollment in Medicare Drug Plans
Summary
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA) established a new voluntary prescription drug benefit under a new Medicare
Part D. The new benefit was effective January 1, 2006. Prescription drug coverage
is provided through private prescription drug plans (PDPs) or Medicare Advantage
prescription drug (MA-PD) plans. At a minimum, these plans offer “standard
coverage” or alternative coverage with actuarially equivalent benefits. Beneficiaries
are required to enroll in one of these private plans in order to obtain coverage.
Persons on the Medicare rolls when the drug program began had until May 15,
2006, to enroll in a Part D plan for 2006. Persons becoming newly eligible for
Medicare at a later date can enroll in Part D at that time. An individual who did not
enroll during the initial enrollment period, or if later, when the person first becomes
eligible for Medicare, can only enroll during the annual open enrollment period,
which runs from November 15 to December 31 of each year; coverage begins the
following January 1. Enrollment for 2007 started on November 15, 2006, and runs
to December 31, 2006.
Generally, persons who fail to enroll during the initial enrollment period will be
subject to a penalty if they decide to enroll in the program at a later date. However,
they will not be subject to the penalty if they have maintained “creditable” drug
coverage through another source. One source of possible creditable coverage is
retiree health coverage offered by a former employer or union.
The late enrollment penalty is 1% of the base beneficiary premium for each
uncovered month. The “base beneficiary premium” is a national figure; it may,
therefore, be different from the premium for the plan selected by the beneficiary.
Individuals first eligible for Medicare on or before January 31, 2006, who deferred
enrollment until the November15-December 31, 2006, enrollment period, would have
had seven uncovered months, unless they maintained creditable coverage. Their
2007 monthly penalty will be $1.91 (7% of the base beneficiary premium).
A major focus of MMA is the enhanced coverage provided to low-income
individuals who enroll in Part D. Persons with incomes below 150% of poverty have
assistance with some portion of the premium and cost-sharing charges. Special
enrollment provisions apply for these individuals. Persons deemed eligible for a low-
income subsidy after the close of the initial enrollment period on May 15, 2006, can
still enroll in a Part D plan in 2006. They will also have one special enrollment
opportunity in 2007. These late enrollees are not subject to the late enrollment
penalty otherwise applicable to persons who missed the enrollment deadline.
During the 109th Congress, a number of bills were introduced that would
modify the provisions relating to the initial enrollment period and/or the late
enrollment penalty. This report will be updated as events warrant.

Contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Enrollment in Part D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Initial Enrollment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Annual Open Enrollment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Creditable Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Considerations When Switching
From Creditable Coverage to Part D Coverage . . . . . . . . . . . . . . . . . . . 5
Special Enrollment Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Late Enrollment Penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Rationale for Late Enrollment Penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Special Provisions for Low-Income Populations . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Dual Eligibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other Persons Automatically Qualifying for Extra Help . . . . . . . . . . . . . . . . 9
Enrollees in Medicare Savings Programs . . . . . . . . . . . . . . . . . . . . . . . 9
Other Low-Income Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Special Provisions for 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2007 Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Individuals Enrolled in Plans that no Longer Have
Premiums Below the Benchmark or in Plans
that Terminate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Individuals Losing Automatic Eligibility
for Low-Income Subsidy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Individuals Falling Into a Different Subsidy Category . . . . . . . . . . . . 12
Enrollment Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2007 Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Medicare:
Enrollment in Medicare Drug Plans
Overview
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA) established a new voluntary outpatient prescription drug benefit under a new
Medicare Part D. The new benefit was effective January 1, 2006. Prescription drug
coverage is provided through private prescription drug plans (PDPs) or Medicare
Advantage prescription drug (MA-PD) plans. At a minimum, these plans offer
“standard coverage” or alternative coverage with actuarially equivalent benefits.
Beneficiaries are required to enroll in one of these private plans in order to obtain
coverage.
A special initial enrollment period applied when the program first went into
effect. Medicare enrollees had until May 15, 2006, to enroll in a Part D plan for
2006. Beneficiaries who enrolled in a plan in 2006 who wish to keep the same plan
in 2007 need not take any action. However, it should be noted that an individual’s
plan may change from 2006 to 2007. For example, the drugs covered under the
plan’s formulary may change and/or the cost sharing requirements may change.
Therefore, all persons should review their coverage to make sure their chosen plan
continues to meet their needs.
Individuals not currently enrolled in Part D and individuals who wish to change
from one Part D plan to another must do so during the annual open enrollment
period. The open enrollment period for 2007 is from November 15 to December 31,
2006. Persons who enroll during this period will be covered under their chosen plan,
effective January 1, 2007.
Generally, persons who failed to enroll during the initial enrollment period (or,
if later, when they first become eligible for Medicare) are subject to a penalty if they
decide to enroll in the program at a later date. However, they will not be subject to
the penalty if they have maintained “creditable” drug coverage through another
source. One source of possible creditable coverage is retiree health coverage offered
by a former employer or union.
A major focus of MMA is the enhanced coverage provided to low-income
individuals who enroll in Part D. Persons with incomes below 150% of poverty have
assistance with some portion of the premium and cost-sharing charges. Special
enrollment provisions apply for these individuals. The Administration announced
that persons deemed eligible for a low-income subsidy after the close of the initial
enrollment period on May 15, 2006, could still enroll in a Part D plan in 2006.
Additionally, CMS recently announced that persons eligible for a low-income

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subsidy will have an additional enrollment opportunity through the end of 2007.
These late enrollees will not be subject to the late enrollment penalty otherwise
applicable to persons who miss the enrollment deadline.
Enrollment in Part D
All persons enrolled in Medicare Part A and/or Medicare Part B are eligible to
enroll in a prescription drug plan under Part D. Beneficiaries enrolled in the “original
Medicare” program can obtain drug coverage through a PDP. A beneficiary enrolled
in a managed care plan under the Medicare Advantage (MA) program can only obtain
drug benefits through the MA organization. If the MA enrollee wants to enroll in a
PDP, he or she must drop their MA enrollment.
Plan Information
Different PDP and MA-PD plans are available in different parts of the country.
Information on plan availability and characteristics can be obtained from a number
of sources. These include the Medicare toll-free information number (1-800-
MEDICARE) and the website [http://www.medicare.gov]. Other organizations may
also be able to provide assistance; these include State Health Insurance Assistance
Programs (SHIPs) and other local organizations.
Beneficiaries must enroll with the organization offering their selected plan.
They can enroll by mail, in person, or on the Web.
Beneficiaries (and persons assisting them) can find a plan meeting their needs
by going to the Medicare drug plan finder on [http://www.Medicare.gov]. An
individual using the WEB tool should have a list of all the medications the
beneficiary currently takes (together with dosage units). The plan finder will then
show the beneficiary the five plans in the area with the lowest total annual cost for
the package of drugs the individual takes. It is important to note that a plan with the
lowest premium and/or no deductible may not, in fact, be the lowest cost plan
overall. Further, the lowest cost plan for one member of a couple may not be the
lowest cost plan for that person’s spouse.
By October 31, 2006, plans were required to provide plan enrollees with a
summary of 2007 benefits and an outline of changes made from 2006. Many plans
are making changes for 2007. For example, they may be changing drugs included in
a plan’s formulary and/or changing the required cost-sharing charges for certain
drugs. Therefore, enrollees should review materials provided by the plans to make
sure that their chosen plans continue to meet their needs.
Sponsors could begin marketing their 2007 plans to Medicare beneficiaries on
October 1, 2006. However, no sign-ups for 2007 could occur before November 15,
2006, the first day of the annual open enrollment period. It should also be noted that
Medicare beneficiaries will have many plans to choose from for 2007 (even more
than for 2006).

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Initial Enrollment Period
In general, Medicare beneficiaries need to enroll in a plan during their initial
enrollment period in order to avoid the delayed enrollment penalty. Persons first
eligible for Medicare on or before January 31, 2006, had an initial six-month
enrollment period beginning November 15, 2005, and ending May 15, 2006. If they
enrolled by December 31, 2005, their coverage began January 1, 2006. If they
enrolled later in the initial enrollment period, their coverage began on the first day
of the first month following the month of enrollment. Individuals first eligible for
coverage in February 2006 had an initial enrollment period from November 15, 2005,
through May 31, 2006. Their coverage began on the first day of the first month
following the month of enrollment, but no earlier than February 2006.
Persons eligible for Medicare beginning March 2006 or later have an initial
seven-month enrollment period beginning three months before the month of
Medicare eligibility and ending seven months later. This initial eligibility period is
the same as that applicable for Medicare Part B. Coverage for these individuals
begins on the first day of the first month following the month of enrollment, but no
earlier than the first month they are entitled to Medicare.
Annual Open Enrollment Period
In general, an individual who does not enroll during his or her initial enrollment
period is only able to enroll during the annual open enrollment period, which occurs
from November 15 to December 31 each year. Coverage begins the following
January 1. Thus, individuals first eligible for Medicare on or before January 31,
2006, who failed to enroll by May 15, 2006, are not able to enroll until the open
enrollment period begins November 15, 2006. If these individuals enroll during this
annual open enrollment period, their coverage will begin January 1, 2007.
(Individuals already enrolled in Part D can change their plan enrollment during the
annual open enrollment period.)
CMS is advising persons newly enrolling or changing their enrollment for 2007
to do so by December 8, 2006. This will help ensure that enrollment information is
processed in time for the January 1, 2007, effective date.
Creditable Coverage
The law imposes a late enrollment penalty on persons who delay enrollment in
a Part D plan until after their initial enrollment period. However, there is an
exception for persons who maintain creditable coverage through some other public
or private source and then choose to enroll in Part D at a later date. Creditable
coverage is defined as drug benefits whose actuarial value equals or exceeds that of
standard coverage.
Major sources of possible creditable coverage are the following:
! Retiree Health Plans Offered by Employers or Unions. Sponsors of
retiree plans are required to disclose whether their plan is creditable

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coverage. The disclosure had to be made to all of their retirees,
spouses, and dependants who were both eligible to participate in the
retiree health plan and who were eligible for Part D. (Qualified
retiree health plans that provide creditable coverage are entitled to
a federal subsidy for certain costs for persons who are eligible for
Part D, but instead get their coverage through the retiree plan.)1
! Other Group Health Plans and Some Individual Health Plans. This
includes health insurance coverage provided to Medicare-eligible
persons who are active employees.
! Military Coverage Including TRICARE. TRICARE has a
comprehensive drug benefit that did not change when Part D was
implemented. Most TRICARE-Medicare eligible beneficiaries do
not need to obtain Part D coverage. The only possible exception is
for low-income persons who might benefit from the low-income
subsidy; these individuals might be able to reduce their out-of-
pocket drug costs. For persons with both Medicare and TRICARE,
Medicare will pay first.2
! Prescription Drug Plans for Veterans. Persons receiving
Department of Veterans’ Affairs health care benefits have creditable
coverage. Some of these individuals may elect to enroll in Part D.
Persons may benefit from Part D coverage if: (1) they live in or
move to a nursing home that does not let them access VA drug
benefits; (2) they live a long way from a VA facility and would
prefer to get drugs from local pharmacies; or (3) they want the
flexibility to get prescriptions filled by a non-VA pharmacy.
Individuals can enroll in both programs, and decide on a prescription
by prescription basis whether to use VA or Medicare. A single drug
prescription will only be covered by one program.3
! State Pharmaceutical Assistance Program (SPAP). A number of
states help the low-income elderly, and in some cases disabled,
residents with their drug costs. Most states modified their SPAPs to
“wrap around” the Part D benefit. Individuals would therefore need
to be enrolled in both Part D and the SPAP to retain their full
coverage.
1 However, if the employer or union contracts directly as a Part D plan or contracts with a
Part D plan to provide Part D coverage, the disclosure requirement is waived. For a
discussion of the interaction of the drug benefit and retiree coverage, see CRS Report
RL33041, Medicare Drug Benefit: Retiree Provisions, by Jennifer O’Sullivan.
2 U.S. Department of Health and Human Services, “Information Partners Can Use on
TRICARE,” New Medicare Prescription Drug Coverage, Tip Sheet, [http://www.cms.gov/
partnerships/downloads/tricare.pdf], accessed Sept. 28, 2005.
3 U.S. Department of Health and Human Services, “Information Partners Can Use on
Veterans’ Administration Benefits,” New Medicare Prescription Drug Coverage, Tip Sheet,
[http://www.cms.gov/partnerships/downloads/VA.pdf], accessed Sept. 28, 2005.

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! Medigap. In general, Medigap plans do NOT offer creditable
coverage. Individuals generally select from one of 10 standardized
plans; prior to January 1, 2006, three of these (Plans H, I, and J)
offered drug coverage. CMS stated that Plans H and I would never
meet the definition of creditable coverage and that Plan J was
unlikely to. The law required Medigap issuers whose policies
included prescription drug coverage to send a special notice, before
November 15, 2005, to their policyholders. One part of this notice
informed policyholders whether their drug coverage was or was not
creditable coverage. Beginning January 1, 2006, insurers are no
longer able to sell Medigap policies with drug coverage. Individuals
who previously had them could renew them, provided they did not
enroll in a Part D plan.4
! Other Coverage. This includes (1) Indian Health Service Tribe or
Tribal Organization or Urban Indian Organization; (2) Program of
All Inclusive Care for the Elderly (PACE) organization; (3) cost-
based health maintenance organization (HMO) or competitive
medical plan (CMP) under Medicare; or (4) state high risk pool.
All of the entities noted above (except for PACE and cost-based HMOs and
CMPs) are required to disclose to all Part D individuals enrolled in or seeking to
enroll in the plan, whether the coverage is creditable. If the coverage is non-
creditable, the entity must (1) include the fact that the coverage is non-creditable, (2)
note that there are limited periods during a year in which the individual may enroll
in Part D, and (3) specify that the individual may be subject to late enrollment
penalties.
The notification must be provided: (1) prior to an individual’s initial enrollment
period; (2) prior to the effective date of enrollment in the coverage and upon any
change that affects whether the coverage is creditable; (3) prior to the annual open
enrollment period; and (4) at the request of the individual.
Considerations When Switching From
Creditable Coverage to Part D Coverage
A beneficiary who has creditable coverage may wish to enroll in a Part D plan
after the conclusion of their initial enrollment period. Care must be taken to assure
that any noncoverage period between the two events does not exceed 63 days.
Otherwise the beneficiary could be subject to a late enrollment penalty.
For example, a retiree who is enrolled in a plan offered by their former employer
decides in July 2006 that they want to drop the employer coverage and enroll in Part
D. The individual is not able to enroll in a Part D plan until the annual election
period (November 15 to December 31). Coverage will not begin until the following
4 For a discussion of the new Medigap requirements see CRS Report RL31223, Medicare:
Supplementary “Medigap” Coverage, by Jennifer O’Sullivan.

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January 1. They will probably want to keep their employer coverage through the end
of 2006.
Special Enrollment Periods5
In general, individuals can only enroll in Part D during their initial enrollment
period or during the annual open enrollment period. However, there are a few
exceptions. Certain exceptions apply for low-income individuals. Persons deemed
eligible for a low-income subsidy after the close of the initial enrollment period on
May 15, 2006, could still enroll in a Part D plan in 2006. These individuals will also
have one additional enrollment opportunity in 2007. Further, persons who both lose
their automatic eligibility for a low-income subsidy in 2007 and fail to enroll in a
plan for 2007 during the annual open enrollment period will have a special three-
month enrollment period at the beginning of 2007. (See the discussion on low-
income populations, below.)
The following are other more limited occasions when an individual may have
a special enrollment period.
! Involuntary Loss of Creditable Coverage. The individual
involuntarily loses creditable coverage or coverage is involuntarily
reduced so that it is no longer creditable coverage. (Loss of
creditable coverage due to failure to pay required premiums is not
considered involuntary loss of coverage.)
! Inadequate Information. The individual was not adequately
informed that he or she had lost creditable coverage, never had
creditable coverage, or coverage is involuntarily reduced so that it is
no longer creditable coverage.
! Federal Error. The individual’s enrollment or non-enrollment in a
Part D plan is unintentional, inadvertent, or erroneous because of
error, misrepresentation, or inaction of a federal employee or
authorized representative of the federal government.
! Disenrollment from MA-PD Plan During First Year. The individual
enrolls with a MA-PD plan upon turning 65, disenrolls during the
first year and elects coverage under traditional “fee-for-service”
Medicare.
! Termination of PDP Contract. The contract is terminated by the
PDP sponsor or CMS or the plan is no longer offered in the area
where the individual resides.
5 CMS, Part D Special Enrollment Periods, November 2006 [http://www.cms.hhs.gov/
partnerships/downloads/PartDSEPs.pdf].

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! Individual Moves. The individual is no longer eligible for the PDP
because the individual moved outside of the PDP region.6
! Plan Failures. The individual demonstrates to CMS that the PDP
sponsor substantially violated a material provision of the contract
relating to the individual including failure to provide benefits on a
timely basis, failure to provide benefits in accordance with
applicable quality standards or materially misrepresenting the plans
provisions in marketing the plan to the individual.
! Hurricane Katrina Evacuees. On March 8, 2006, CMS announced7
that Hurricane Katrina evacuees (residing in certain designated Zip
codes at the time of the hurricane) could have a special enrollment
period in 2006 to enable them to join or switch plans.
Late Enrollment Penalty
Calculation8
The late enrollment penalty (sometimes referred to as a higher premium charge)
is assessed on persons who go for 63 days or longer after the close of their initial Part
D enrollment period without creditable coverage and subsequently enroll in Part D.
The penalty is based on the number of months the individual does not have creditable
coverage. The premium that would otherwise apply is increased for each month
without creditable coverage.
The late enrollment penalty is frequently described as being equal to at least 1%
of the otherwise applicable premium for each uncovered month. The actual
calculation is somewhat more complicated. The law specifies that the penalty is the
greater of: (1) the amount CMS determines is actuarially sound for each uncovered
month; or (2) 1% of the base beneficiary premium for each uncovered month. The
“base beneficiary premium” is a national figure;9 it may therefore be different than
the premium for the plan selected by the beneficiary. For uncovered months
occurring during 2006, the 1% calculation applies. For uncovered months in 2007,
6 Note that persons who are “snowbirds” are encouraged to enroll in national PDP plans.
Persons referred to as snowbirds are generally persons who move to warmer locations in the
winter and then return home for the remainder of the year.
7 CMS, Additional Opportunities for Individuals Affected by Hurricane Katrina Have to
Join and Switch Medicare Plans, Including Medicare Prescription Drug Plans in 2006,
memo to all Medicare Advantage Organizations, Prescription Drug Plans, Cost Plans, PACE
Organizations and Demonstrations, Mar. 8, 2006.
8 CMS, Calculating the Late Enrollment Penalty, October 2006 [http://www.cms.hhs.gov/
partnerships/downloads/lateenrollment.pdf].
9 The base beneficiary premium is linked to a weighted average of plan bids for a reference
month in the preceding calendar year, as determined by CMS. The weighted average is
based on plan enrollment compared to overall Part D enrollment.

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the 1% calculation will also apply unless the Secretary specifies a different amount
based on available analysis.It is possible that in future years, CMS may calculate an
actuarially sound amount (i.e., an amount better reflecting the costs associated with
late enrollment) which is higher than the 1% calculation. In that case the actuarially
sound amount would apply.
The penalty applies for as long as the individual is enrolled in Part D. The
dollar amount of the penalty is expected to increase each year.
As noted above, individuals first eligible for Medicare on or before January 31,
2006, who failed to enroll by May 15, 2006, were not able to enroll until November
15, 2006, with coverage beginning January 1, 2007. If these individuals did not have
creditable coverage during the period, they would have seven uncovered months.
Their penalty would therefore be 7% of the base beneficiary premium — $1.91 (7%
of the base beneficiary premium of $27.35 for 2007). If these same persons waited
an additional year, their penalty would be 19% of the base beneficiary premium (or
possibly a higher actuarially sound amount, as determined by CMS).
Rationale for Late Enrollment Penalty
The Part D delayed enrollment penalty provision was included in MMA to
prevent adverse selection. Adverse selection occurs when only those persons who
think they need the benefit actually enroll in the program. When this happens, per
capita costs are driven up, thereby causing more persons (presumably the healthier,
and less costly ones) to drop out of the program. Over time, as more persons drop
out, program costs become prohibitive. The intention of the penalty is to encourage
all persons who do not have creditable coverage to enroll. Those who have creditable
coverage are maintaining insurance protection and are not deferring coverage until
they will actually need it.
The Part D delayed enrollment provision was included in MMA, in part based
on the experience with Medicare Part B (the Supplementary Medical Insurance
program, which covers physicians services and other medical services). A Part B
delayed enrollment penalty provision was included in the original Medicare
legislation, which was enacted in 1965. Since most persons over 65 are enrolled in
Part B, the costs are spread over the majority of this population group. Per capita
costs are considerably less than would be the case if adverse selection had occurred.
Special Provisions for Low-Income Populations
A major focus of MMA is the enhanced coverage provided to low-income
individuals who enroll in Part D.10 Generally there is a two-step process for low-
income enrollees. First, a determination must be made that they qualify for the
assistance; and, second, they must enroll, or be enrolled, in a specific Part D plan.
10 For a detailed discussion of enrollment and benefits for the low-income population, see
CRS Report RL32902, Medicare Prescription Drug Benefit: Low-Income Provisions, by
Jennifer O’Sullivan.

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Special procedures were established to make the process easier. The procedures are
different for different categories of low-income enrollees.
Dual Eligibles
Dual eligibles are persons who are dually eligible for Medicare and full
Medicaid benefits. In the past, they had their drug costs paid by Medicaid. Effective
January 1, 2006, they have their prescription drug costs paid under Part D. Medicaid
no longer pays for drugs which could be covered under Part D.
There were more than 6 million dual eligibles who needed to be enrolled in a
Part D plan for 2006. CMS established an auto-enrollment process which was
intended to assure there was no gap in coverage. The auto-enrollment process was
random among plans with premiums at or below the low-income benchmark
premium.11 The program experienced a number of problems during the initial days
of operation — particularly related to the transition of dual eligibles. Reportedly, the
problems were subsequently resolved.
There are a number of differences among available plans. Key differences are
drugs included in plan formularies and pharmacies participating in the plan as
network pharmacies. Some dual eligibles may find that they were auto-enrolled in
a plan which may not best meet their needs. For this reason, they are able to change
enrollment at any time with the new coverage effective the following month. It
should be noted that if an enrollee selects a plan with a premium above the low-
income benchmark, he or she will be required to pay the difference.
Other Persons Automatically Qualifying for Extra Help
Enrollees in Medicare Savings Programs. A second group of low-
income persons automatically qualify for assistance in meeting Part D Medicare
premium and cost-sharing requirements. These are individuals who are currently
enrolled in Medicare Savings programs [i.e., the Qualified Medicare Beneficiary
(QMB) program, the Specified Low-Income Medicare Beneficiary (SLMB) program,
and the Qualified Individual (QI-1) program],12 or the Supplemental Security Income
program.
CMS established a process, labeled “facilitated enrollment” for enrollees in
Medicare Savings programs (MSPs), SSI enrollees, and persons who applied for and
were approved for low-income subsidy assistance. The basic features applicable to
auto-enrollment for dual eligibles (i.e., random assignment to plans with premiums
below the low-income benchmark and assignment of MA enrollees to the lowest-cost
11 The low-income benchmark premium is a weighted average of premiums in the area.
12 The QMB program pays Medicare Parts A and B cost-sharing charges and Medicare Part
B premiums for persons at or below 100% of the federal poverty level. The SLMB program
pays Medicare Part B premiums for persons with incomes over the QMB limit up to 120%
of poverty. The QI-1 program pays the Part B premiums for persons above the SLMB limit
up to 135% of poverty.

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MA-PD plan offered by the MA organization) were extended to facilitated
enrollment.
Beneficiaries eligible for facilitated enrollment in 2006 were sent notices
informing them of the plans they would be enrolled in if they took no action. If the
beneficiary failed to select another plan (and did not decline Part D enrollment), he
or she would be considered to be enrolled in the assigned plan, effective May 1,
2006. As is the case for a dual eligible, an MSP enrollee can change plan enrollment
throughout the year.
Other Low-Income Persons. MMA extended low-income subsidies to all
persons with incomes below 150% of poverty and with assets (in 2006) below
$10,000 for an individual and $20,000 for a couple. Persons not identified as dual
eligibles, MSP enrollees, or SSI recipients may qualify, but they need to submit an
application. The Social Security Administration (SSA) makes eligibility
determinations for those who fill out the applications.
A key concern is the identification of low-income persons eligible for subsidy
assistance but not enrolled in Medicare Savings Programs or SSI. Beneficiary
advocates are concerned that many persons who should apply are either not aware of
the benefit, do not understand the application process, or think they will not qualify.
On the other hand, not all persons who apply are eligible. SSA reported that as
of April 30, 2006, it had received applications from 4.9 million beneficiaries; of these
almost 850,000 were unnecessary, because either the applicants were automatically
eligible or they had filed more than one application. The agency had made more than
3.9 million determinations; 1.7 million of these were deemed to be subsidy-eligible.13
Many observers contend that the relatively low percentage of eligibles reflects the
program’s assets limitations.
Special Provisions for 2006
As noted earlier, CMS established a special enrollment period for persons
eligible for a low-income subsidy.14 (It characterized the change in status resulting
from a low-income subsidy determination made after May 15 as an exceptional
circumstance warranting a special enrollment period.)15 Specifically, persons deemed
eligible for a low-income subsidy after the close of the initial enrollment period on
May 15, 2006, could still enroll in a Part D plan in 2006. The President stated that
13 U.S. Congress. House Committee on Ways and Means, Subcommittee on Health,
Statement of Beatrice Disman, Chairman Medicare Planning and Implementation Task
Force, Social Security Administration, May 3, 2006.
14 CMS, Center for Beneficiary Choices, Instructions for 2007 Contract Year, memorandum
to Medicare Prescription Drug Plan (PDP) Sponsors, Apr. 3, 2006.
15 U.S. Congress, House Committee on Ways and Means, Subcommittee on Health,
Statement of Mark McClellan, Administrator of CMS, May 3, 2006.

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these late enrollees would not be subject to the late enrollment penalty otherwise
applicable to persons who miss the 2006 enrollment deadline.16
CMS facilitates enrollment in Part D plans for persons identified as qualifying
for extra help. The facilitated enrollment process is similar to that for dual eligibles.
Namely, persons are randomly enrolled in plans with premiums at or below the low-
income benchmark. However, unless they are dual eligibles or MSP enrollees, they
are able to switch plans only once during 2006, with the new coverage effective the
following month. Similarly, they will be allowed to switch plans once during 2007.
2007 Enrollment
There are several circumstances under which a low-income subsidy-eligible
person will experience a change from 2006 to 2007. These include cases in which
an individual: 1) is enrolled in a plan whose 2007 premium will no longer fall below
the low-income benchmark premium; 2) is enrolled in a plan that terminates its
participation in Part D; 3) loses automatic eligibility for the low-income subsidy in
2007; or 4) falls into a different subsidy category.
Individuals Enrolled in Plans that no Longer Have Premiums Below
the Benchmark or in Plans that Terminate. CMS has established a process
for reassigning these beneficiaries to a different Part D plan. Beneficiaries to be
reassigned must meet all of the following criteria:
! They were deemed eligible for a subsidy in 2006 because they were
dual eligibles, participants in a Medicare Savings Program, SSI
recipients, or because they applied and were found eligible for the
subsidy;
! they will continue to be eligible for a subsidy in 2007;
! they were originally auto-enrolled or had their enrollment facilitated
into a PDP;
! they did not elect to enroll in a different plan; and
! their current plan has a 2007 premium that is above the “de minimus
amount” (which is the benchmark plus $2) or is terminating at the
end of 2006.
Beneficiaries meeting all of these criteria will be reassigned to a different PDP
in the region as follows: The beneficiaries will be assigned to another plan in the
same region offered by the same PDP sponsor, if the sponsor has a plan with a
premium at or below the benchmark. (If there is more than one such plan, CMS will
randomly assign beneficiaries among these plans.) If no such plan exists, CMS will
randomly assign beneficiaries among PDP sponsors with at least one plan with a
premium at or below the benchmark. CMS will notify beneficiaries of their plan
assignment in early November 2006. However, beneficiaries may voluntarily elect
to stay in their current plan (if it is still offered) or select a different plan from the one
assigned by CMS.
16 The White House, President Bush Discusses Medicare Prescription Drug Benefit,
transcript, Kings Point Clubhouse, Sun City Center, Florida, May 9, 2006.

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Beneficiaries who changed plans in 2006 after they were either auto-assigned
to a plan or had their enrollment facilitated into a plan will not have their selection
changed by CMS. The beneficiary is free to change his or her selection.
Individuals Losing Automatic Eligibility for Low-Income Subsidy.
Persons automatically qualifying for a low-income subsidy are dual eligibles, persons
enrolled in Medicare Savings programs, and SSI recipients. At the end of September
2006, CMS began sending letters to those beneficiaries losing their automatic
eligibility for a low-income subsidy in 2007 because they no longer fall into one of
these categories. At the same time, these beneficiaries were told they still might
qualify for assistance and were encouraged to file a low-income subsidy application
with SSA. The application and a postage-paid envelope were enclosed with each
notice.
CMS is providing a one-time special enrollment period from January 1, 2007,
to March 31, 2007, to allow any individual who no longer automatically qualifies for
a low-income subsidy to make a one-time part D election. Additionally, CMS has
also stated that plan sponsors may choose to offer up to a three-month grace period
for the collection of premiums and cost-sharing charges for those persons who can
demonstrate that they have applied for a low-income subsidy. Sponsors may recoup
any uncollected amounts if, after this period, the individual is not eligible for the
subsidy.
Individuals Falling Into a Different Subsidy Category. Beneficiaries
who will experience a change in their low-income subsidy level in 2007 are receiving
a separate notice informing them of the change. These beneficiaries will be subject
to different cost-sharing requirements.
Enrollment Data
There are approximately 42 million persons enrolled in Medicare Part A and/
or Part B and therefore eligible for coverage under Medicare Part D. On June 14,
2006, the Department of Health and Human Services (HHS) released a status report
on drug coverage as of June 11, 2006.17 It estimated that 38.2 million persons had
drug coverage. The statistics include both those covered under Part D and those who
continue to have drug coverage through retiree plans and other sources. The
following are the numbers as reported by HHS:
! 10.4 million enrolled in stand-alone PDPs (including 2.2 million
receiving the low-income subsidy);
! 6.0 million in MA plans (including 925,000 receiving the low-
income subsidy, of which 478,000 are dual eligibles);
! 6.1 million dual eligibles automatically enrolled (plus the 478,000
enrolled in MA plans);
17 Department of Health and Human Services, Over 38 Million People With Medicare Now
Receiving Prescription Drug Coverage, Press Release, June 14, 2006.

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! 6.9 million persons in retiree plans receiving a subsidy (with an
additional 1.5 million in employer and union-sponsored coverage
counted in the totals above);
! 3.5 million with federal retiree coverage (1.9 million in TRICARE
and 1.6 million in the Federal Employees Health Benefits (FEHB)
program;18 and
! 5.4 million with other sources of creditable coverage (2.0 million
with Veterans Affairs coverage not enrolled in a PDP;19 0.1 million
with coverage through the Indian Health Service; 2.6 million active
workers with coverage through an employer group plan; 0.1 million
retirees with creditable coverage from a former employer that is not
coordinated with Medicare coverage; and 0.6 million continuing to
receive creditable coverage through a state pharmaceutical assistance
program in the four states not requiring enrollment in Part D (New
Jersey, New York, Pennsylvania, and Wisconsin).
HHS further reported that approximately 4.4 million Medicare beneficiaries did
not have drug coverage as of June 11, 2006; approximately 3.2 million of these were
estimated to be eligible for the low-income subsidy. The May 15, 2006, deadline and
the late enrollment penalty do not apply to persons subsequently determined eligible
for a low-income subsidy in 2006. It was hoped that more of these individuals would
enroll during the year.
Issues
Enrollment
Many observers have suggested that the range of options posed by the new drug
benefit proved confusing for some Medicare beneficiaries. They contended that
some persons were unable to make a selection by May 15, 2006, the closing date of
the initial enrollment period. While the Administration waived the enrollment
deadline for the low-income population, many persons stated that the waiver should
apply for all persons in 2006, or at least that the penalty should not be applied for
persons first enrolling during the open enrollment period occurring between
November 15, 2006, and December 31, 2006.
During the 109th Congress, a number of bills have been introduced that would
modify the provisions relating to the initial enrollment period and/or the late
enrollment penalty. Both the Chairman of the Senate Finance Committee and the
Chairman of the Health Subcommittee of the House Committee on Ways and Means
introduced legislation that would specify that the late enrollment penalty would not
18 Excludes 7% of TRICARE enrollees found to be enrolled in Part D and 2% of FEHB
enrollees who might be enrolled in Part D based on information from the Department of
Defense and the Office of Personnel Management).
19 HHS reports that 1 million VA beneficiaries enrolled in a Part D plan and about 400,000
are receiving coverage from an employer receiving the drug subsidy.

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apply for any months during 2006 in which an individual did not have creditable
coverage. The Senate bill, the Medicare Late Enrollment Assistance Act of 2006 [S.
2810 (Grassley et al.)] would also provide additional funding for state health
insurance counseling programs and area agencies on aging, and revise expenditures
under the Medicare stabilization fund (which serves as a financial incentive for MA
plans to enter and remain in the program). The House bill, the Medicare Drug
Benefit Enrollment Fairness Act of 2006 (H.R. 5399, Johnson of Conn. et al.) is
similar to S. 2810, except it would not increase the funding for state health insurance
counseling programs and area agencies on aging. As of this writing, no action has
occurred on these measures.
2007 Enrollment
In 2006, approximately 90% of Medicare beneficiaries had drug coverage
through Part D or through some form of creditable coverage. Beneficiaries enrolling
in PDPs primarily enrolled in plans offered by a relatively small number of
organizations. As a result, many observers had expected that the number of offerings
available to beneficiaries would decline from 2006 to 2007. However, information
from CMS suggests that this is not the case. CMS reports that most beneficiaries
will, in fact, have more plan choices for 2007.
Beneficiaries are being asked to review their options to see if any better meet
their needs. They are also being asked to make changes, if any, by December 8,
2006, in order to assure that the change is processed before the January 1, 2007,
effective date.
The percentage of beneficiaries electing to change plans from 2006 to 2007, and
the types of new plans such beneficiaries elect to enroll in, may provide some
indication of the measure of satisfaction with existing plans and the types of coverage
deemed of most value to beneficiaries. However, the fact that a beneficiary elects to
stay with an existing plan, rather than change plans, may also reflect a reluctance to
navigate among the large number of available options.
Congress is expected to monitor the 2007 enrollment process. It is expected to
review the smoothness of the transition for persons changing plans from 2006 to
2007. It is also expected to review the smoothness of the transition between plans
for low-income persons who are automatically enrolled in a different plan in 2007
because either the 2007 premium for their current plan will no longer fall below the
low-income benchmark premium or their current plan is terminating its participation
in Part D.
Additionally, Congress is expected to review the transition for the 600,000
persons who are losing their automatic status as low-income subsidy individuals.
Some of these persons may be able to reestablish their eligibility (though possibly in
a different coverage group), while others will no longer be eligible for the extra help.
A continued concern for the Congress will be the ability to identify and enroll
persons eligible for the low-income subsidy who are not currently enrolled. This
population has proved difficult to reach, both for the Part D program and for other
programs designed to assist this population group. In order to encourage enrollment

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of this population, these individuals have been able to enroll in 2006 after the May
15 deadline and not incur a late enrollment penalty. CMS recently announced that
these individuals would be given an additional enrollment opportunity through the
end of 2007.