Medicare’s catastrophic drug insurance can be a catastrophe for consumers

Editor’s Note: Journalist Philip Moeller, who writes widely on health and retirement, is here to provide the Medicare answers you need in “Ask Phil, the Medicare Maven.” Send your questions to Phil.

The Ask Phil (e)mailbox has been overflowing of late. I will get to as many questions as I can here, but please accept my apology for not being able to answer all of your questions.

Penny – Idaho: I will turn 65 in July 2017. I buy my insurance from my employer. I have chronic myelogenous leukemia and take a very expensive drug. The pharmaceutical company has an assistance program that pays me the 20 percent copay that is not covered by my employer health insurance. I understand that I will not get copay assistance when I am on Medicare. This would be a huge problem. I could continue working and still get the assistance payments. But this illness is exhausting, and I would love to retire at 65.

Phil Moeller: Penny, I am so sorry to learn of your struggles with CML. It is an awful disease, and I wish you all the best. Your prospective payment problems highlight some of the real craziness in U.S. drug pricing and how Medicare Part D drug plans work.

It strikes me as puzzling, if not disingenuous, that pharmaceutical companies can defend their often high drug prices as necessary to spur continued research, and yet, at the same time, they have enough spare cash lying around to fork over big assistance payments to people like Penny. I suspect the reason this is so is because Medicare Part D plans virtually guarantee drug companies that they will enjoy wonderful paydays for their drugs when patients move from private health insurance onto Medicare.

Medicare does not permit private payment assistance plans to help pay for drugs for Medicare beneficiaries. It considers such payments to be a form of bribery — possibly causing patients and doctors to use medications that might not be the most effective in treating patients’ medical conditions and also more expensive than other medically acceptable treatments. Unless this prohibition changes, Penny will not be able to continue using this assistance and will have to rely on the rules of Medicare Part D plans to help her afford her medication.

I won’t get into the complicated and frustrating rules here of the “donut hole” in Part D plans. It’s the catastrophic level of these plans that’s involved in Penny’s situation. When your total out-of-pocket spending in a Part D has reached $4,850 this year (the threshold changes each year), you must pay only a few dollars for additional prescriptions or 5 percent of the cost of the drug.

In Penny’s case, she would have to pay 5 percent of the cost of her medication once she has reached the catastrophic phase of her Part D plan. Her percentage copayments before reaching this phase of the plan’s coverage would be even higher. But with a truly expensive drug, she would hit the catastrophic phase of the plan coverage very early in the year. So it’s the 5 percent catastrophic payment that would be her major financial concern.

Penny is understandably worried about the financial hit she would face moving onto a Part D plan. But while she would pay 5 percent of the cost of her drug, her insurance plan would pay 15 percent of these catastrophic-level costs, and the federal government is legally obligated to pick up the remaining 80 percent of the cost. This 80 percent requirement amounts to a guaranteed bonanza for pharmaceutical companies.

Jeanne – Pa.: Why is Medicare taken from my Social Security benefits and also from my paycheck from a part-time job? Isn’t that paying twice?

Phil Moeller: Yes, but you’re paying two different things. The withdrawals from your Social Security benefits are for premiums on your Medicare insurance. The payroll taxes are what you and all other wage earners must pay into the Medicare hospital insurance trust fund. This fund pays for Medicare’s Part A hospital insurance. Anyone who qualifies for Social Security gets premium-free Part A coverage, so maybe you’re not getting such a bad deal after all.

Wayne – Mich.: I will turn 65 this June and will continue to work for a large corporation. My concern is I keep reading that you need to file for Medicare three months before you turn 65, and if you don’t file within three months after 65, you can have lifetime premium penalties. I will need Medicare after I retire and don’t want a lifelong premium penalty for not filing now. What do I need to do now to insure my employer coverage continues and my Medicare benefits are available at retirement without a penalty?

Phil Moeller: If you are still working for this company and enrolled in its group health insurance program, you do not need to sign up for Medicare when you turn 65. You can continue using your employer health insurance until it ends upon your retirement. At that time, you will have an enrollment period that will permit you to sign up for various types of Medicare coverage without any penalties. There is an exception to this rule that is linked to whether the drug coverage in your employer’s plan is at least as good as a standard Medicare Part D prescription drug plan. Your employer is legally required to provide a statement to this effect every year.

Judith – Nev.: I am turning 65 in July, and if I’m reading correctly, I will be paying a high premium for Part B due to poor timing on my part. I took out a large amount of money from my IRA to purchase a condo in 2014 — thinking it was a good idea at my age not to have a mortgage. I did not know Medicare premiums were based on your adjusted gross income. This was totally my fault for not investigating. Anyway, I called Social Security and was told there is a very limited “life-changing event” form if your income has dropped. I’m wondering if buying housing is such a life-changing event. Also, will Social Security change my premiums in 2017 based on my 2015 tax return?

Phil Moeller: Judith is asking about IRMAA, which stands for income-related monthly adjustment amount. This is a fancy way of saying that Social Security socks Medicare beneficiaries with some pretty stiff high-income premium surcharges for Parts B and D of Medicare. I’m afraid she’s right that buying a home is not a life-changing event and that she will be stuck with an IRMAA boost to her Medicare premiums. She is also correct, however, that if her income declines enough in 2015, her IRMAA surcharge would go away in 2017.

Sally – Wash.: I am going to be 65 this December and am retired. I have full coverage through my husband’s place of employment. He will continue to work for another five years. Do I need to sign up for Medicare?

Phil Moeller: No, you should be good so long as your husband’s situation is the same as Wayne’s, which was addressed in a previous answer in this column. (Scroll up.) If your husband’s active employer coverage continues, you should continue to be covered on his policy as a spouse. As always, however, I urge you to confirm this with his employee benefits office.

Pauline – Calif.: My husband is 66, and I am 64. We are both covered by his work health insurance. He enrolled in Medicare Part A before his 65th birthday. We were careful to read the rules and know that he doesn’t need Part B until he retires from his job. He plans to retire this December. I will be 65 this August 2016. I will enroll for Part A, but I am not sure if the option to wait to enroll in Part B applies to me as the spouse? We are also concerned about missing the open-enrollment period for supplemental plans even though I understand there is a special exception if you are leaving work-related health insurance.

Phil Moeller: As with Sally, you do not need Medicare until your husband’s active employer group health insurance ends. At that time, both of you will need Part B, and you’ll also have enrollment periods providing you guaranteed access to sign up for Medigap policies without facing higher premiums or coverage restrictions due to your age or any medical conditions.

Marilyn – N.J.: I plan to continue working when I turn 65. Can I wait to sign up for Part B and Part D without higher premiums when I do retire? Do I pay higher Medigap premiums later, and can insurers refuse to insure me due to preexisting conditions?

Phil Moeller: See my answer to Pauline above.

News Update: Medicare has just begun a large-scale test of how it pays for hip and knee replacements. Under this so-called “bundled” payment approach, roughly 800 hospitals in 67 different metro areas around the country will be accountable for all the costs of such procedures for a period of 90 days following surgery. If overall costs are higher than Medicare payment provisions, hospitals would pay the difference. If costs are less, hospitals will keep the savings. It’s not clear how this test will work, but it certainly has the potential to affect the treatments that Medicare beneficiaries receive. If you have a joint-replacement surgery under this test, please let me know about your experiences, for better or worse.

Worth Reading: I also would like to draw your attention to a cautionary tale about how Medicare coverage can seem adequate, but may not cover the services you actually end up needing. Lots of people have stories from the Medicare trenches. This one commands attention, because it comes from Tricia Neuman, senior vice president of the Kaiser Family Foundation and head of its Medicare programs. You should read what she has to say.