Medicare Part D asset test
The Henry J. Kaiser Family Foundation
April 2005
Low-Income Subsidies for the Medicare Prescription Drug Benefit:
The Impact of the Asset Test
By Thomas Rice, Ph.D. and Katherine A. Desmond, M.S.
Conclusions
This study estimates that in 2006, when the new Medicare prescription drug benefit goes into effect, 2.37 million low-income Medicare beneficiaries will not qualify for subsidized coverage because they fail the asset test. As a result, these individuals will face the same “doughnut hole” cost-sharing requirements as wealthier beneficiaries. This means that in addition to paying full monthly premiums, they will be responsible for substantial out-of- pocket costs - e.g., $3,600 of the first $5,100 of annual prescription drug spending on covered drugs in 2006.
The study further examines the types of beneficiaries who will be excluded by the asset test, as well as the types of assets responsible. Perhaps the most noteworthy finding is that the asset test will fall most heavily on those who are widowed. Whereas only 29 percent of Medicare beneficiaries are widowed, nearly half - 46% - of those failing the asset test are widowed and nearly all of these (43% of the 46%) are women. Widows tend to be older, live alone, and have more chronic illnesses necessitating prescription drug purchases, but have less family support as well. Put another way, the life event (death of a husband)leads to reduced income and thus more of a need for subsidies, but as written, the legislation effectively excludes many widows from these subsidies.
It is hardly surprising that most individuals who do not meet the asset test have relatively modest assets, which tend to be bank accounts rather than stocks, mutual funds, and bonds. They have little in the way of private retirement accounts such as IRAs and 401(k)s, real estate beyond their own home, and almost no equity in businesses. This would be expected among a population of low-income individuals.
The study’s findings raise serious questions about the equity of the asset test. During their working years, Americans are encouraged to save for retirement and the possibility that they will face sizable long-term care expenses. Those to whom this message is most salient will have little or no income beyond what they receive from Social Security. By accumulating modest amounts of assets, either through bank accounts or retirement-savings vehicles, these same people have guaranteed that they will not qualify for the low-income Medicare drug subsidies - but the vast majority use prescription drugs every day. Using more common parlance, they find themselves in a “Catch-22.” If they do save, they are disqualified from the subsidies. If they do not save, they will receive the subsidies but will have almost nothing to fall back upon besides their Social Security checks. And this burden tends to fall on the most vulnerable of seniors: older, low-income widows living alone.
This dynamic appears to be inequitable, given the groups of seniors who are most affected, and unfair because it penalizes both savings and widowhood. Modifying or eliminating the asset test would help protect those disadvantaged by low incomes who would be excluded from subsidized prescription drug benefits due to the asset test.
http://www.kff.org/medicare/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=52270
Comment: Is the asset test a good idea? After all, why should taxpayers purchase prescriptions for individuals who have some money set aside in a bank account? And why shouldn’t we make seniors sensitive to the costs of prescription drugs so that they’ll fill only the prescriptions that they really need?
It should be presumed that all prescriptions are selected in consultation with the patient’s health care professional based on an anticipated maintenance or improvement in physical health that exceeds any potential risk of the medication. Thus there should be no prescription that shouldn’t be filled because it’s not really needed. Prescription medication should be rejected only on the basis of lack of benefit, but not on the basis of lack of affordability.
And why shouldn’t we require a spending down of assets before providing protection against prescription drug costs? Requiring a person to deplete their limited assets before they can have affordable access to prescription drugs is simply an inhumane policy.
Means testing of income and assets theoretically is a method of improving equity in access to health care for those with very low incomes and very limited assets. The problem is that those of relatively modest means who fall above the thresholds will be victims of this inequitable method of establishing health benefits. As you adjust the thresholds upwards, eventually benefits become available to individuals who really don’t need financial assistance from taxpayers, creating yet another inequity.
We should begin with the presumption that everyone should be able to receive prescription drugs, and, indeed, any health care that they need. Rather than attempting to create financial equity at the time of accessing the health care system, it is far easier to create equity at the time of funding the system. That is one of the great advantages of social insurance. Everyone receives the health care that they need, while the entire system is funded equitably.
Unfortunately, our national policymakers have a different set of priorities. They wish to reduce the tax burden on those who have no financial barriers to care by reducing health care utilization of the great majority of citizens of modest means. Is that really what America is about?