Medicare Part D Low-Income Subsidy: Assets and Income Are Both Important in Subsidy Denials, and Access to State and Manufacturer Drug Programs Is Uneven
Published: 2008-09-05T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: To help defray the cost of prescription drugs for beneficiaries with limited means, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) included the low-income subsidy (LIS) in the Part D prescription drug insurance program. To qualify for the LIS, beneficiaries must be enrolled in a Part D plan and their assets and income must be less than the thresholds established by the law. Part D is administered by the Centers for Medicare & Medicaid Services (CMS), and the Social Security Administration (SSA) administers the eligibility determination for the LIS. The MMA directed GAO to compare the utilization of and access to Part D prescription drugs among beneficiaries who received the LIS with those who were denied it because of the amount of their assets. This report focuses on beneficiaries' access to prescription drugs by examining (1) the importance of assets and income in LIS denials in 2006 and 2007, and (2) state and manufacturer programs providing access to prescription drugs for Medicare beneficiaries. To do this, GAO analyzed data from SSA, reviewed information on state and drug manufacturer pharmaceutical programs, and interviewed officials from SSA, CMS, state programs, advocacy organizations, and pharmaceutical manufacturer programs.
section_title: What GAO Found
paragraphs: In 2006 and 2007, assets and income were both important factors in LIS denials, but income was of greater importance. In 2006, 4.5 million beneficiaries applied for the LIS and more than half were denied the subsidy. About half of LIS denials in 2006 were based solely or in part on applicants' assets exceeding program thresholds, and in 2007, about 30 percent of LIS denials were for this reason. By contrast, 66.2 percent of denials were due at least in part to income in 2006 and 81.2 percent in 2007. Because some applicants in both years were denied the LIS by an initial screen that only asked about assets and were not required to give information on income, it is impossible to know the number of these applicants who would also have been denied the LIS because of their income. Among those who provided detailed information about their assets, applicants denied the LIS often exceeded the asset threshold by a relatively small amount, and in both years more than one-quarter of these applicants exceeded the threshold by less than $5,000. Some states and drug manufacturers offer programs that assist low-income Medicare beneficiaries in obtaining prescription drugs, but the availability of these programs and the assistance they offer are uneven. Twenty-three states offer State Pharmaceutical Assistance Programs (SPAP), which can supplement Part D benefits. These SPAPs differ in the type and extent of assistance they offer, but they generally cover some of the beneficiaries' out-of-pocket prescription drug costs. Prescription drug manufacturers' Patient Assistance Programs (PAP) also assist low-income individuals in obtaining prescription drugs. However, not all PAPs are open to Part D beneficiaries, and the drugs provided are limited to those of the sponsoring manufacturers. CMS concurred with our report. SSA expressed appreciation that we used its analysis of applicants denied the LIS in 2006 and 2007 as the foundation for our analysis of the impact of the assets test on LIS applicants.

section_title: Letter
paragraphs: The Medicare Prescription Drug, Improvement, and Modernization Act of  2003 (MMA) created a voluntary outpatient prescription drug insurance  program, known as Medicare Part D, that provides prescription drug  coverage for over 25 million beneficiaries—seniors and individuals with  disabilities—enrolled in the program. Under this program, which began in  January 2006, Medicare beneficiaries can enroll in prescription drug plans  run by private companies that contract with the Centers for Medicare &  Medicaid Services (CMS), the agency in the Department of Health and  Human Services (HHS) that administers the Medicare program. The   Part D program shares the cost of these drug plans with enrollees.
To help further defray the costs of prescription drugs for beneficiaries  with limited financial means, the MMA included a provision for a low- income subsidy (LIS). Through the LIS, Medicare assists these  beneficiaries with their out-of-pocket prescription drug expenses, with the  amount of assistance depending on beneficiaries’ income and assets. To  qualify for the LIS, applicants must meet two conditions: (1) their income  and assets must be less than the thresholds established by the MMA; and  (2) they must be enrolled in a Part D plan. (For 2008, the income  threshold for the LIS is $15,600 for individuals and $21,000 for couples; the  asset threshold is $11,990 for individuals and $23,970 for couples.) The  Social Security Administration (SSA) administers the LIS eligibility- determination process, notifying CMS whether an individual applicant has  been approved for the LIS or denied it. In addition to the Part D LIS, some  state and drug manufacturer programs provide prescription drug  assistance to Medicare beneficiaries with low incomes.
Prior to the enactment of the MMA, there was considerable discussion  among policymakers about the appropriateness of using an asset test (in  addition to an income test) to determine eligibility for the LIS. Some  contended that an income test alone was sufficient to identify those who  needed the LIS and that an asset test would prevent seniors who needed  assistance from qualifying for it. Following these discussions, the MMA  directed us to compare the utilization of and access to Part D drugs among  beneficiaries who received the LIS with those denied it because of the  amount of their assets. We will address this mandate in two reports. This  report focuses on Medicare beneficiaries’ access to prescription drugs by  examining: (1) the importance of assets and income in LIS denials in 2006  and 2007; and (2) state and drug manufacturer programs providing access  to prescription drugs for Medicare beneficiaries. We will issue a second  report comparing the prescription drug utilization of those who received  the LIS with those who were denied it because of their assets.
Our analysis is limited to LIS applicants; individuals deemed eligible for  the LIS—dual eligibles and supplemental security income (SSI)  recipients—are not within our scope because they do not have to apply for  it. To examine the impact of the asset test on LIS applicants, we reviewed  SSA documentation and examined SSA’s analyses of applicants who were  denied the LIS. We did not independently examine SSA’s data, but SSA  checked applicant information against its own and other federal  databases. We therefore determined that these data are sufficiently  reliable for our purposes.
To examine potential access to other sources of assistance with  prescription drug costs, we reviewed literature on state programs and the  requirements of these programs. We also examined CMS information on  programs established by states and pharmaceutical manufacturers to  assist individuals in obtaining drugs. We interviewed state program  officials and representatives of pharmaceutical manufacturer programs.
We conducted this performance audit from August 2007 through July 2008  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: All Medicare beneficiaries who have either Part A or Part B coverage and  reside in the United States (the 50 states and the District of Columbia) can  obtain Part D coverage. Under Part D, both the beneficiary and the plan  pay a portion of the cost of covered prescription drugs. In general,  beneficiaries are responsible for paying monthly premiums, an annual  deductible, and copayments. For 2008, under the standard benefit,  beneficiaries pay a deductible of $275 as well as 25 percent of the cost of  their prescription drugs up to the initial coverage limit of $2,510 (which  includes expenditures by both the plan and the beneficiary).  Beneficiaries then enter the coverage gap (also called the doughnut hole)  where they pay the entire cost of their prescription drugs. The annual  catastrophic threshold is $5,726.25. At this point, the beneficiary’s “true  out-of-pocket” (TrOOP) payment has amounted to $4,050 with the  remainder ($1,676.25) paid by the plan. After reaching the annual  catastrophic threshold, the beneficiary is responsible for only modest cost  sharing: the higher of 5 percent of the prescription drug’s cost or $2.25 for  a generic drug and $5.60 for a brand name drug. (See fig. 1.)
subsections: section_title: The Low-Income Subsidy (LIS)
paragraphs: When Congress passed Part D, it also provided the LIS, an additional  subsidy for beneficiaries with limited assets and income to help them pay  their portion of out-of-pocket costs. Most Medicare beneficiaries who  receive the LIS are “deemed”—that is, they qualify for the subsidy  automatically on the basis of being Medicaid or Supplemental Security  Income (SSI) recipients, or because they are enrolled in certain Medicare  Savings Programs. Those beneficiaries who are not deemed must apply  for the LIS and show that their assets and income are below specified  limits. As of January 2008, CMS data showed that 9.38 million beneficiaries  were receiving the LIS, of whom 7.85 million had been deemed and   1.53 million had applied for the subsidy. CMS estimated that there were   2.6 million beneficiaries who were eligible for the LIS but not receiving it.
The amount of assistance provided to LIS recipients is also determined by  their income and assets. All LIS recipients are entitled to a premium  subsidy that is based on their income. For recipients of the LIS who had  to apply for it, the premium subsidy is 100 percent for individuals or  couples whose income is less than 135 percent of the federal poverty level  (FPL). It varies by income for such recipients whose income is less than  150 percent of the FPL but greater than or equal to 135 percent of the  FPL. LIS recipients eligible for a full premium subsidy pay no premium if  they enroll in a Part D plan offering basic prescription drug coverage with  a premium less than or equal to the benchmark premium for their area.  They also can choose to enroll in a plan with a premium higher than the  benchmark premium and pay the difference between the two. Similarly,  LIS recipients entitled to a partial premium subsidy pay the difference  between their plan’s premium and the percentage of the plan’s premium  subsidy amount determined by their income level. (See table 1.)
Recipients of the LIS pay a small deductible or none at all and are not  subject to the coverage gap—they pay the same copayment or coinsurance  for each prescription until their total expenditures reach the catastrophic  threshold ($5,726 in 2008). Those with incomes less than 135 percent of  the FPL and assets less than $7,790 in 2008 for individuals, or $12,440 for  couples, pay no deductible. They pay a flat amount for each prescription  until their spending reaches the annual catastrophic threshold, after which  they pay nothing. Other LIS recipients pay a deductible not exceeding $56.  They pay 15 percent coinsurance for each prescription or the plan’s  copayment, whichever is less, until their spending reaches the annual  catastrophic threshold. From there on, they pay $2.25 for a generic drug  and $5.60 for a brand name drug.
section_title: Applying for the LIS
paragraphs: Beneficiaries generally apply to SSA for the LIS. The application can be  completed by the applicant, completed with the assistance of SSA staff in  person or by phone, or completed on the Internet. Applicants are asked  an initial screening question about their assets (Question 3 on the  application, see fig. 2): whether their savings, investments, and real estate  (other than their home) are worth more than $11,990, or, if married and  living with their spouse, whether their combined assets are worth more  than $23,970. If applicants check “YES,” they are denied the LIS; if they  check “NO or NOT SURE,” they are asked a series of detailed questions  about their assets and income. The questions about assets cover: (1) bank  accounts (checking, savings, and certificates of deposit); (2) stocks,  bonds, savings bonds, mutual funds, Individual Retirement Accounts, and  other investments; (3) any other cash; (4) life insurance policies with a  total face value greater than $1,500; and (5) real estate other than the  applicant’s home. Applicants are also asked if they plan to use any of their  assets for funeral expenses and, if they answer yes, $1,500 of their assets  are disregarded ($3,000 for couples). The detailed questions about income  cover: (1) Social Security benefits; (2) railroad retirement; (3) veterans’  benefits; (4) other pensions and annuities; (5) other income including  alimony, net rental income, and workers’ compensation; and (6) assistance  with household expenses from anyone (for example, from a relative or  friend). Applicants are approved for the LIS only if both their assets and  incomes are less than the thresholds established by law. Because some  applicants were denied the LIS based on their checking the “YES” box on  the initial screening question about assets and were not required to answer  questions about their income, we cannot know how many of these  applicants would have also failed to qualify for the LIS on the basis of their  income. Further, it is not known how many applicants may have been  dissuaded from submitting an application due to the detailed nature of the  information they must provide about their income and assets.
SSA does not rely solely on the information on the application, but also  checks its own databases and those of other agencies, including the  Internal Revenue Service. If it identifies discrepancies between the  information on the application and in the databases, SSA may request  additional information from an applicant.
section_title: Assets and Income Were Important Factors in LIS Denials
paragraphs: Both assets and income were important factors in LIS denials, but more  applicants were denied the subsidy because their income was too high  than were denied it because their assets were too high. However, because  some applicants were denied the LIS based solely on the initial assets  screening question, and were not required to answer questions about their  income, it is not possible to know how many of these applicants would  have also been denied the LIS because of their income. In both 2006 and  2007, of those beneficiaries who were denied the LIS and who answered  detailed questions about their assets, more than one in four exceeded the  assets threshold by less than $5,000. Overall, more than half of the  applicants for the subsidy in 2006 were denied it in calendar year 2006 and  about 56 percent were denied it in fiscal year 2007.
subsections: section_title: Assets Were Less Important as Basis for Denial Than Income in Both 2006 and 2007
paragraphs: In 2006 and 2007, assets and income were both an important basis for  denying the LIS, but income accounted for a larger number of denials in  both years. In 2006, 50.4 percent of all denials were due at least in part to  assets; by contrast, 66.2 percent were based at least in part on income.  (See fig. 3.) In 2006, 22.2 percent of LIS denials resulted from the answer to  the initial screening question, which asked about assets. Because these  applicants were not required to answer questions about income, it is  impossible to know how many of them would also have been denied the  LIS because of their income. However, a minimum of 11.6 percent of 2006  denials were due entirely to assets. In 2007, the difference between  income-based denials and asset-based denials increased: 29.5 percent of  denials were due at least in part to assets, while 81.2 percent were due at  least in part to income. Overall, more than half of the 4.5 million applicants  for the subsidy in 2006 were denied it in calendar year 2006 and about   56 percent were denied it in fiscal year 2007.
section_title: Denials Often Exceeded Asset Threshold by Relatively Small Amount
paragraphs: In both 2006 and 2007, a number of applicants who were denied the LIS in  part because of their assets, and who reported the actual amount of their  assets, exceeded the threshold by a relatively small amount. For example,  in 2006, 3.6 percent of these denials exceeded the asset threshold by less  than $500; 10.4 percent exceeded the threshold by less than $1,500; and  26.0 percent exceeded the threshold by less than $5,000. (See fig. 4.) In  2007, the pattern was similar: 5.0 percent exceeded the asset threshold by  less than $500, 12.4 percent by less than $1,500, and 26.9 percent by less  than $5,000.
section_title: Some State and Drug Manufacturer Programs Help Beneficiaries, but Provide Uneven Access to Prescription Drugs
paragraphs: Some state and drug manufacturer programs provide assistance to  Medicare beneficiaries with limited income in obtaining drugs, but they do  not provide uniform national access to prescription drugs. State  Pharmaceutical Assistance Programs (SPAP) can fill gaps in low-income  individuals’ Part D coverage, but less than half of the states have SPAPs.  The eligibility requirements for these programs vary, as does the type and  extent of assistance provided. Pharmaceutical manufacturers sponsor  Patient Assistance Programs (PAP) that provide assistance to low-income  individuals, but not all are open to Medicare beneficiaries, and the drugs  they provide are limited to those produced by the sponsor.
subsections: section_title: SPAPs Offer Assistance to Medicare Beneficiaries with Limited Incomes, but Access Is Uneven
paragraphs: SPAPs offer financial assistance to low-income Medicare beneficiaries— those who receive the LIS and those who do not—in obtaining  prescription drugs, but these programs are available in only a minority of  states. Under the MMA, SPAPs—which generally predate Part D—can  offer wrap-around benefits that fill in gaps in Part D and cover some or all  of the beneficiary’s out-of-pocket expenditures. To qualify as an SPAP  under Part D, the program must coordinate payments and payment  processing with the Part D plans in which their beneficiaries are enrolled.  Expenses paid by a qualified SPAP are counted toward the enrolled  beneficiary’s TrOOP costs.
Fewer than half of all states have SPAPs that are open to enrollment by  low-income Medicare beneficiaries. As of October 2007, 23 states offered  37 qualified SPAPs to assist Medicare beneficiaries in paying their Part D  costs. (See fig. 5.) Twenty of the 37 programs serve broadly defined  populations. Broadly defined SPAPs require applicants to be state  residents and meet eligibility requirements with respect to age and  financial resources, but do not require an applicant to have been  diagnosed with a specific disease or condition. Fourteen of the remaining  programs assist special populations of individuals who have specific  diseases or conditions, such as HIV-AIDS.
States establish their own eligibility standards for SPAPs. All 20 SPAPs  that serve a broadly defined population have an income test, but only one,  North Carolina’s, has an asset test. All but one of these programs,  Pennsylvania’s Pharmaceutical Assistance Contract for the Elderly  (PACE), have income limits that exceed the LIS income threshold, which  is less than 150 percent of the FPL. (See fig. 6.) Most SPAPs have income  limits set at or above 200 percent of the FPL, and three have limits that  exceed 300 percent of the FPL. In four cases, the income limits are set so  that benefits are graduated—enrollees with higher incomes receive less  assistance that those with lower incomes.
Many SPAPs also require Medicare beneficiaries to apply for the LIS. As of  October 2007, over half of the 20 SPAPs that serve broadly defined  populations required applicants who were potentially eligible for the LIS  to apply for it in conjunction with applying for assistance from the state.  By identifying individuals eligible for the LIS, the cost to the state is  reduced because Medicare pays for some prescription drug costs that  would otherwise be paid by the SPAP.
The assistance that broadly defined SPAPs provide to Part D enrollees is  uneven and varies in three ways: (1) the types of Part D costs for which  SPAPs may provide financial assistance; (2) the amount of financial  assistance they provide in each case; and (3) the drugs they pay for that  are not otherwise covered by a Part D plan. Part D costs for which SPAPs  may provide assistance include monthly plan premiums, the annual  deductible, and copayments (in the initial coverage period and in the  coverage gap). While 8 of the 20 SPAPs that assist broadly defined  populations provide some assistance for all four types of Part D costs, the  others assist Part D enrollees with one or more of these costs. (See   table 2.)
Broadly defined SPAPs differ in the amount of assistance they provide for  Part D premiums, deductibles, and copayments. Eleven of the 20 qualified  SPAPs that serve a broadly defined population cover the full Part D  premium for at least some enrollees, and 6 SPAPs offer no assistance  with the premium. Programs also vary in the portion of the copayment  they pay in both the initial coverage period and in the coverage gap.
In addition to assistance with Medicare Part D drug costs, many SPAPs  pay for classes of drugs not covered by Medicare Part D. Some programs  also pay for drugs not covered by a particular Part D plan (often referred  to as nonformulary drugs).
section_title: Manufacturers’ Patient Assistance Programs Help Some Low-income Medicare Beneficiaries, but Program Features Vary
paragraphs: Pharmaceutical manufacturers provide prescription drug assistance to  some low-income individuals, including Part D beneficiaries, through  Patient Assistance Programs (PAP). These programs, which are operated  by the manufacturer or an independent charitable organization, provide  prescription drugs free or at a reduced price. Individual program features,  including the application process, eligibility requirements, and drugs  offered, vary. PAPs typically assist individuals who have chronic illnesses  and high drug costs. Unlike SPAPs, these programs are national in scope.  However, the drugs they provide are limited to those produced by the  sponsoring manufacturer and some manufacturers may not make all their  drugs available.
PAPs typically require beneficiaries to demonstrate financial need, be  residents or citizens of the United States, and have no prescription drug  insurance coverage other than Part D. An applicant’s income usually must  fall below 200 percent of the FPL to qualify for assistance, although some  PAPs have higher limits. Many PAPs, however, do not publish their income  eligibility standards. In the case of financial hardship, some PAPs evaluate  individuals on a case by case basis.
PAPs generally operate outside of Part D, meaning that beneficiaries can  obtain prescription drugs without using their Part D insurance benefit.  Drugs provided to Medicare beneficiaries by PAPs operating outside of  Part D do not count against TrOOP costs, but nominal copayments  charged by some programs may. Part D plans use data from the PAPs to  ensure that drugs the programs provide beneficiaries do not count against  their TrOOP and to enable Part D plans to address safety concerns  associated with prescription drugs provided outside of Part D. CMS  maintains a Web site that provides information on drugs available to  Medicare beneficiaries through 47 PAPs, including PAPs representing 9 of  the 10 largest pharmaceutical companies.
The process for accessing PAPs and their drugs varies considerably. Many  PAPs make application forms available on the Internet, while others  require that applications be requested by phone, and some PAPs may  screen for eligibility before sending out an application. Some PAPs that  offer more than one product allow applicants to receive more than one  drug at a time, whereas others have separate applications for each drug.
The degree of physician involvement in the application process also varies  across PAPs. Patients often learn about the programs from a physician  and, in many cases, a physician or patient advocate completes the  application on behalf of the patient. In other cases, the patient can  complete and submit the application, but the physician’s signature is  required.
Individuals typically receive a 30-day to 180-day supply of drugs after their  applications are approved. The drugs are generally sent to a clinic or  doctor’s office, although some PAPs mail drugs directly to the individuals  or give them a voucher that can be redeemed at a pharmacy. The number  of refills allowed also varies, with some PAPs requiring individuals to  submit a new application for each refill.
section_title: Concluding Observations
paragraphs: We have shown that in 2006 and 2007 income was a more important factor  in LIS denials than assets, but both were important. Whether or not there  should be an asset test in addition to the income test is an issue that  cannot be resolved by analysis. Those beneficiaries who do not qualify for  the LIS because their assets are above the program threshold, but whose  incomes are limited, may obtain access to drugs through 23 state programs  and through drug manufacturer programs. However, the availability of  these programs and the assistance they offer are uneven, and they do not  provide the coverage obtained through a national program with uniform  eligibility standards.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to CMS (see app. II) and SSA (see   app. III). CMS concurred with our report and its concluding observations.  SSA expressed appreciation that we used its analysis of applicants denied  the LIS in 2006 and 2007 as the foundation of our analysis of the impact of  the assets test on LIS applicants. Both agencies provided technical  comments that we incorporated where appropriate.
We are sending copies of this report to the Acting Administrator of CMS  and the Commissioner of Social Security. We will also provide copies to  others on request. In addition, this report is available at no charge on the  GAO Web site at http://www.gao.gov.
If you or your staff have questions about this report, please contact me at  (202) 512-7114 or steinwalda@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix IV.
section_title: Appendix I: Social Security Administration Application for the Low-Income Subsidy, 2008
section_title: Appendix II: Comments from the Centers for Medicare & Medicaid Services
section_title: Appendix III: Comments from the Social Security Administration
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact above, Phyllis Thorburn, Assistant Director;  Carolyn Garvey; Drew Long; Maya Tholandi; and Eric Wedum made key  contributions to this report.