Major Provisions of Medicare Law

Details of the Medicare (search) law providing older Americans with a prescription drug benefit (search) and overhauling the government-run health care program for 40 million older and disabled Americans:


In 2004 and 2005, older Americans will be able to buy a discount card for $30 a year that the Bush administration estimates will yield savings of 15 percent or more off the cost of drugs. Low-income elderly people will get an annual subsidy of $600 to defray costs further.


Beginning in 2006, Medicare beneficiaries can sign up for a stand-alone drug plan or join a private health plan that offers drug coverage. They will be charged an estimated premium of $35 per month, or $420 per year. After meeting a $250 deductible, insurance will pay 75 percent of drug costs up to $2,250.

— Coverage gap:

There will be no coverage for drug costs between $2,250 and $5,100.

— Catastrophic coverage:

When drug costs reach $5,100, insurance will cover 95 percent of drug costs or require a modest co-payment.

— Low-income subsidies:

The premium, deductible and coverage gap will be waived for people earning up to $12,123 a year. To qualify for the subsidy, seniors can have no more than $6,000 in assets, other than a house. The subsidies will be phased out between $12,123 and roughly $13,500 in yearly income.

— Retiree coverage:

Tax-free subsidies, perhaps worth as much as $70 billion, will be provided to employers who maintain drug coverage for retirees once Medicare drug benefit begins in 2006.


— Premium:

By law, Medicare beneficiaries pay 25 percent of the Part B premium and the government pays the rest. Individuals with incomes greater than $80,000 will pay a larger premium. The size of their premium will increase on a sliding scale, topping out at 80 percent for people with incomes over $200,000.

— Deductible:

It will rise from $100 to $110 in 2005 and thereafter be indexed to the growth in Part B spending.


— Role of private companies:

Private firms will administer the drug benefit on a regional basis. The bill will provide $12 billion in subsidies to private insurers that choose to offer basic health insurance. Those include preferred provider organizations (search) (PPOs), which encourage use of certain doctors but allow patients to go elsewhere if they pay extra, and private fee-for-service plans, which allow patients to see any doctor.

Beginning in 2010, traditional Medicare also will face competition from private plans in six metropolitan areas in which at least two private plans enroll at least 25 percent of Medicare beneficiaries. For those who remain in traditional Medicare, premium increases will be capped at 5 percent a year and waived for low-income seniors. The competition will last six years.

The government will provide drug coverage in any region that does not have at least one stand-alone drug plan and one private health plan.

— Rural health:

Will spend about $25 billion to increase payments to rural hospitals and doctors, among others.

— Generic drugs:

The bill will speed generic drugs to the market by limiting ability of pharmaceutical companies to block cheaper equivalents.

— Drug importation from Canada:

The bill will maintain the ban on importing prescription drugs. It will allow such drugs from Canada, but only if the Health and Human Services Department certifies safety, something it has declined to do. The legislation will authorize a study of safety issues.

— Hospital payments:

The bill will allow hospitals to avoid future cuts in payments by submitting quality data to the federal agency that runs the Medicare program. At the same time, it will increase payments through Medicaid to hospitals that serve a large number of disadvantaged patients.

The bill will impose an 18-month pause in development of new specialty hospitals and limit expansion of existing ones.

— Physician payments:

The bill will block planned cuts in physician payments in 2004 and 2005 and instead provide a 1.5 percent increase.

— New benefits:

The bill will cover an initial doctor's appointment for new Medicare beneficiaries and screening for diabetes and cardiovascular disease. It will provide benefits for coordinated care for people with chronic illnesses, and will increase payments for doctors administering mammograms in hope that more are given.

— Health-related tax savings accounts (Health Savings Accounts):

The bill will allow people with high-deductible health insurance policies — at least $1,000 a year for individuals, $2,000 for couples — to shelter income from taxes. Individuals younger than 65, employers or family members will make pretax contributions equal to the deductible, up to a maximum of $2,600 a year for individuals and $5,150 for families. After 65 years of age, earnings and distribution also will be tax-free, provided the money is used for health expenses, including insurance premiums, prescription drugs and long-term care. Otherwise, a 10 percent penalty will apply.

— Home health care:

The bill will cut payments to home health agencies, but not require co-payments from patients.

— Cost containment:

When general revenues constitute 45 percent of Medicare spending, Congress and the administration will have to review Medicare's finances.