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
Released: 2008-09-05T00:00:00

Letter

Background

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.)

The Low-Income Subsidy (LIS)

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.

Applying for the LIS

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.

Assets and Income Were Important Factors in LIS Denials

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.

Assets Were Less Important as Basis for Denial Than Income in Both 2006 and 2007

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.

Denials Often Exceeded Asset Threshold by Relatively Small Amount

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.

Some State and Drug Manufacturer Programs Help Beneficiaries, but Provide Uneven Access to Prescription Drugs

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.

SPAPs Offer Assistance to Medicare Beneficiaries with Limited Incomes, but Access Is Uneven

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).

Manufacturers’ Patient Assistance Programs Help Some Low-income Medicare Beneficiaries, but Program Features Vary

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.

Concluding Observations

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.

Agency Comments and Our Evaluation

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.

Appendix I: Social Security Administration Application for the Low-Income Subsidy, 2008

Appendix II: Comments from the Centers for Medicare & Medicaid Services

Appendix III: Comments from the Social Security Administration

Appendix IV: GAO Contact and Staff Acknowledgments

Acknowledgments

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.