DEPARTMENT OF HEALTH & HUMAN SERVICES 	 Office of Inspector General 

NOV 1 7 2006 	 Washington, D.C. 20201 

TO: 	 Leslie V. Nonvalk, Esq. 

Acting Administrator 

Centers for Medicare & Medicaid Services 

FROM: 	 Daniel R. Levinson 

Inspector General 

SUBJECT: 	 Identifjring Beneficiaries Eligible for the Medicare Part D Low-Income 

Subsidy, OEI-03-06-00 120 

BACKGROUND 

Medicare Prescription Drug Program. The Medicare Prescription Drug, Improvement, 

and Modernization Act of 2003 (MMA), Public Law 108-1 73, established the Voluntary 

Prescription Drug Benefit Program, also known as Medicare Part D. Effective January 1, 

2006, this program provides an optional prescription drug benefit for all Medicare 

beneficiaries. Beneficiaries who choose to enroll in the Medicare prescription drug program 

will be responsible for certain out-of-pocket costs that may include a monthly premium, 

annual deductible, and copayments. 

Subsidy Assistance. Beneficiaries with limited income and assets are eligible to receive 

assistance to pay for the out-of-pocket costs associated with their prescription drug coverage 

(42 U.S.C. 1395w-114). The fewer resources an eligible beneficiary has, the lower his or her 

out-of-pocket costs will be. Some beneficiaries receive drug coverage with no monthly 

premium, no annual deductible, and no copayments. Other beneficiaries pay copayments 

ranging from $1 to $5, but will not pay monthly premiums or annual deductibles. Still other 

beneficiaries have a sliding-scale monthly premium, a $50 deductible, and coinsurance of 

15 percent. 

To .- be eligible for the subsidy, a beneficiary's annual income in 2006 must be less than 

150 percent of the Federal poverty level ($14,700 for an individual and $19,800 for a married 

couple living together) and assets should be below $10,000 for individuals and $20,000 for 

married couples. Assets include things such as bank accounts, stocks, bonds, and real estate 

other than the beneficiary's primary residence. 

Outreach to Beneficiaries. The Centers for Medicare & Medicaid Services (CMS) has 

overall responsibility for implementing the prescription drug benefit. The Social Security 

Administration (SSA) was given responsibility for processing the subsidy applications and 

determining eligibility. CMS and SSA are both working to educate beneficiaries about the 

subsidy. CMS and SSA have divided outreach responsibilities for this population. 
Page 2 -Leslie V. Nonvalk, Esq. 

CMS Outreach to Beneficiaries. In May and June 2005, CMS sent notices to approximately 

7.2 million beneficiaries who were automatically eligible for the subsidy program. The 

notice informed beneficiaries about their automatic enrollment in the prescription drug 

benefit and subsidy programs. Beneficiaries who were automatically eligible and did not 

need to apply for the subsidy included: (1) those eligible for both Medicare and full 

Medicaid benefits, (2) Supplemental Security Income recipients, and (3) participants in the 

Medicare Savings Programs through which Medicaid pays for beneficiaries' Medicare 

premiums and cost sharing. 

SSA Outreach to Beneficiaries. Between May and August 2005, SSA conducted a mailing to 

almost 19 million beneficiaries potentially eligible for the subsidy.' SSA provided 

beneficiaries an application form and instructions on how to apply for the subsidy. SSA also 

hired a contractor to conduct follow-up phone calls to beneficiaries who did not respond to 

the initial mailing. Beneficiaries potentially eligible for the subsidy can apply through SSA 

or by going to their State Medicaid agency. SSA began accepting applications in May 2005 

and State Medicaid agencies began taking applications in July 2005. 

SSA's goal was to have as many potentially eligible beneficiaries as possible apply for the 

subsidy before the prescription drug program began in January 2006. As of July 14,2006, 

approximately 5.2 million subsidy applications had been processed. Just over 889,000 did 

not require approval because the beneficiaries already were deemed eligible or filed a 

duplicate application. Of the remaining 4.3 million applications, approximately 2 million 

were approved. Enrollment in the subsidy is ongoing and outreach efforts will extend beyond 

the initial prescription drug plan enrollment period, which ended May 15,2006. 

METHODOLOGY 

We contacted officials at CMS and SSA to learn about their efforts to identifjr the pool of 

beneficiaries potentially eligible for the subsidy. We requested information to identify the 

data sources these agencies used to identify this population. We reviewed legislation, 

regulations, agency guidance, and congressional testimony relating to the subsidy. In 

addition, we reviewed data from CMS, SSA, and the Congressional Budget Office to compile 

general information on the prescription drug benefit and specific information on the subsidy. 

' This mailing excluded those beneficiaries CMS deemed automatically eligible for the subsidy. 
Page 3 -Leslie V. Nonvalk, Esq. 

RESULTS 

Currently, there is no way to effectively identify the pool of beneficiaries who may be 

eligible for the subsidy. Neither CMS nor SSA has a comprehensive source of income data 

to accurately identify potentially eligible beneficiaries who need to apply for the subsidy. 

CMS Data Sources. CMS has estimated that 6.1 million beneficiaries would meet the 

income and asset requirements if they applied for the subsidy. However, this estimate 

represents the size of the population likely to be eligible but does not identify which 

beneficiaries comprise this population. The estimate was based on information from the 

"Current Population Survey" and the "Survey of Income and Program Participation" 

conducted by the U.S. Census ~ureau.~ It did not identify individual beneficiaries to whom 

outreach efforts could be targeted. 

SSA Data Sources. When developing its database for outreach to potentially eligible 

beneficiaries, SSA attempted to target its effort by using earnings data from the Internal 

Revenue Service (IRS). However, IRS objected to SSA's use of the information which 

would have enabled SSA to identify individuals who met the income requirement for 

eligibility. 

IRS reported to SSA that it could not permit use of the information because of the application 

of Title 26, section 6103, of the United States Code, which addresses confidentiality and 

disclosure of tax return information. Pursuant to 26 U.S.C. fj6103(c), RS is authorized to 

disclose a taxpayer's tax return or return information only to a person designated by the 

taxpayer. Therefore, this requirement does not allow SSA to use a beneficiary's IRS records 

until the beneficiary completes the subsidy application form.3 Since no exception to this 

principle was authorized by the MMA, SSA was not able to use IRS information to target 

beneficiaries for outreach. 

Without the ability to use IRS data, SSA used financial data from other Federal sources to 

identify beneficiaries who might be eligible for the subsidy. SSA identified these 

beneficiaries by compiling data from sources such as Railroad Retirement Board pensions, 

Veterans Administration benefits, and Social Security benefits. Based on this data, SSA 

mailed subsidy application forms to nearly 19 million beneficiaries. This mailing was an 

overestimate of the actual potentially eligible population because SSA did not have 

comprehensive income data for these beneficiaries. 

The Current Population Survey (CPS) is a monthly household survey on employment and unemployment conducted by the 

U.S. Census Bureau for the Bureau of Labor Statistics. CMS used data from the 2004 CPS for its estimate. The Survey of 

Income and Program Participation (SIPP) is conducted by the U.S. Census Bureau and provides information on the income 

and program participation of individuals and households in the United States. CMS used data from the 2001 SIPP for its 

estimate. 

When beneficiaries sign the subsidy application form, they authorize SSA to obtain information relating to their income 

and assets from Federal, State, and local agencies, including IRS. 
Page 4 -Leslie V. Norwalk, Esq. 

CONCLUSION 

Beneficiaries who qualify for the subsidy will receive substantial savings on their prescription 

drug costs. Therefore, it is important for these beneficiaries to be identified and informed 

about the subsidy so they can take advantage of the benefit. 

Legislation is needed to allow CMS and SSA to more effectively identify beneficiaries who 

are potentially eligible for the subsidy. The identification of these beneficiaries would allow 

for more efficient and effective targeting of outreach efforts. Access to IRS data would help 

CMS and SSA identify the beneficiaries most likely to be eligible for the subsidy. 

Specifically, IRS earnings data would help identify individuals who meet the income 

threshold for eligibility. 

This type of data sharing already occurs under the Medicare Secondary Payer program. 

Section 1862(b)(5) of the Social Security Act, enacted by the Omnibus Budget Reconciliation 

Act of 1989, authorizes CMS, SSA, and IRS to share information about Medicare 

beneficiaries and their spouses to identify situations in which another health insurer, and not 

Medicare, should have been the primary payer for health care services. The process of 

sharing this information is known as the IRSISSAICMS Data Match. A similar type of data 

exchange would help identify beneficiaries who are potentially eligible for the Part D 

subsidy. 

Even though SSA mailed nearly 19 million subsidy applications, as of July 2006, only 

2 million or approximately 33 percent of the 6.1 million beneficiaries whom CMS estimated 

would be eligible for the subsidy were approved for the benefit. Legislation that would allow 

data sharing among CMS, SSA, and IRS would help to create a more accurate pool of 

potentially eligible beneficiaries. The identification of these beneficiaries would allow for a 

more targeted and effective outreach effort to ensure that all those who qualify for the subsidy 

receive this important assistance. Without knowing the true population of potentially eligible 

beneficiaries, it is difficult to judge the success of current outreach and enrollment efforts. 

We hope you will find this information useful as you look for ways to ensure that 

beneficiaries who are potentially eligible for the subsidy are effectively and efficiently 

identified. If you would like to discuss this matter further, please contact me, or have your 

staff contact Judy Holtz at (202) 6 19- 1343 or through e-mail [Judy Holtz@oig.hhs.gov] . Please refer to inspection number OEI-03-06-00120 in all correspondence.