The Medicare drug subsidy that millions of enrollees overlook

Editor’s Note: The open enrollment period for Medicare extends to Dec. 7. To help readers navigate this complicated process, Making Sen$e turns to journalist Philip Moeller, who writes widely on health and retirement, to answer your Medicare questions in a new column on this page, “Ask Phil, the Medicare Maven.” Read Phil’s past columns and keep sending your questions.

Phil Moeller is a research fellow at the Center on Aging & Work at Boston College and co-author of “How to Live to 100.” Follow him on Twitter @PhilMoeller or e-mail him at

Millions of Medicare enrollees are unfamiliar with a key feature of Medicare that could save them money on their prescriptions. Sound too good to be true?


Ask Phil Here

Well, there are catches, of course. You must meet the financial qualifications. But you may be surprised to learn that the income standards have become more generous in recent years.

The Medicare Part D Low Income Subsidy program, otherwise known as “Extra Help,” helps people pay their Medicare prescription drug bills. Those bills are so expensive that nearly 12 million people with a Part D Medicare drug plan, or more than 30 percent of all Part D participants, received low-income subsidies last year of nearly $40 billion, a Medicare spokesman says. Low-income Medicare premium subsidies totaled another $7.5 billion.

Medicare enrollees with incomes below the federal poverty level who qualify for Extra Help support usually pay no premium or deductible for their Part D plans. Their total payment for drugs is limited to $3.60 for brand-name medicines and $1.20 for generics. Payments are higher for people whose incomes are above the federal poverty level but still low enough to qualify for Extra Help.

As big as the Extra Help program has become, the Centers for Medicare & Medicaid Services (CMS) estimates that as many as 2 million more Medicare enrollees qualify for this help but either don’t know about it, think it doesn’t apply to them, or simply haven’t bothered to ask. They, or you, as the case may be, shouldn’t rule it out especially since the definition of low income has become more generous of late.


How to plug holes in your Medicare coverage

To qualify, your annual income must be less than $17,505 a year ($23,595 for a married couple). But you can get an unlimited amount of money to help you pay for household expenses – from relatives, friends or others – and it does not count as income.

Your financial resources must be less than $13,440 ($26,860 for a married couple). But life insurance policies no longer count against your total financial resources. Neither do your home, vehicles and personal possessions.

There are other exclusions to the income and resource cutoffs, so if you think you’re too well off to qualify for Extra Help you may not be. Maybe qualifying is bittersweet, but getting help with your drug bills should be a good thing. The qualification process is run by Social Security (it handles a lot of administrative work for Medicare). You can apply online or call Social Security at 1-800-772-1213 (TTY users: 1-800-325-0778).

If you do plan to apply for Extra Help (there is no cost or obligation), you should first round up your personal financial information, tax returns and details of any Social Security benefits you are receiving. In other words, the process may take some time.

Also, Extra Help is automatically provided to people on Medicare who also are on Medicaid, or who also collect Supplemental Security Income from Social Security. If this applies to you, don’t apply for Extra Help.


How to find a Medicare Part D drug plan online

Extra Help may have you either congratulating Washington for being kind-hearted or lamenting yet another building block of the welfare state. Before you do either, though, consider that when the government created Part D plans about a decade ago, the drug industry carved a big notch on its belt when Medicare was denied the right to negotiate with drug companies for lower prices for consumers.

Medicare has the market clout to achieve substantial savings for consumers, but it’s not allowed to do so. Instead, health insurers negotiate with drug companies to determine prescription costs. I’m as sure as you are that they drive a very, very hard bargain. Anyway, when all this tough negotiating is done, we (as in taxpayers) fork over $47 billion a year to private insurance companies for Part D drug and related plan subsidies. Well done, you negotiators out there!

Further, to soften the impact of high prices on lower-income seniors, Medicare rules have created a set of perverse incentives. A recent Congressional Budget Office study finds that Medicare’s LIS (geekspeak for low-income subsidy) rules have caused Part D drug insurers to game Medicare rules to exploit the low-income market.

They do so by offering plans with premiums that they know are very likely to be low enough to be fully covered by Extra Help. An effective premium of zero draws low-income customers who pay too much attention to low premiums and not enough to other plan charges. But this premium is also low enough to formally entitle the insurance plan to automatically gain a share of low-income customers assigned to different plans by Medicare.

Having attracted low-income customers, insurers then face the reality that Extra Help recipients have little if any reason to be cost-conscious drug consumers. Those with full subsidies pay nothing for their coverage and a pittance for even brand name drugs. Plans serving this market thus may be forced to apply heavy-handed rules to limit plan members’ access to expensive drugs. As so often happens with even well-intentioned regulations, unintended consequences can make everyone unhappy with the outcome. In this instance, insurers and pharmaceutical firms get black marks with consumers, who in turn feel unfairly denied access to needed drugs.