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.) 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. 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. 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. 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. 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 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.