Updated

Low-income Americans who get a government subsidy are projected to have most of their spending on prescription medicines wiped away in the Medicare drug benefit (search) that begins in 2006, according to an independent analysis released Monday.

But several million people actually would spend more on drugs under the new program.

Although average out-of-pocket spending is projected to be lower than it otherwise would have been, many Medicare beneficiaries will continue to face high drug bills, said the study by the Kaiser Family Foundation (search), a nonpartisan health care think-tank.

The signature component of last year's Medicare law, the prescription drug benefit will vary widely in its impact on the 29 million older and disabled Americans that the Congressional Budget Office projects will enroll, the Kaiser study said. The average savings will be 37 percent in 2006, the CBO said.

The prospect of differing benefits is no surprise to lawmakers who wrote the Medicare legislation. The most assistance was to go to the poor and those whose drug bills exceed $5,100 a year. In between, there is help, but also a large gap, called a doughnut hole, in which the government will pay nothing.

"This analysis shows that the prescription drug law will provide the most help to seniors with low incomes and very high drug bills, just as Congress intended," Kaiser president Drew Altman said. "Congress faced budget constraints and had to make trade-off decisions. The question is whether the law they passed will meet seniors' expectations."

The Bush administration is projecting higher participation and larger average savings, exceeding 50 percent, among the 41 million Medicare beneficiaries.

All estimates exclude the insurance premiums, projected to average $420 for 2006, that beneficiaries will pay.

In addition to the premium, participants will pay the first $250 in prescription expenses. After that, the government will pay 75 percent of the next $2,000 in drug bills. Above $2,250 in prescription costs, however, the doughnut hole opens and beneficiaries will pay the entire bill until it reaches $5,100. At that point, called the catastrophic limit, the government will pick up all but 5 percent of the costs.

Most of the charges will be waived for the poor. An estimated 8.7 million people with low incomes are projected to pay 83 percent less than they would have if the Medicare law had not been enacted, the Kaiser analysis said. To qualify for the assistance, people have to prove that they have minimal savings and other assets, in addition to low incomes.

The savings for everyone else is estimated at 28 percent in the Kaiser study, based on a model developed by Actuarial Research Corp.

That includes almost 7 million people who are projected to reach the coverage gap, when they must pay their entire drug bill.

Of that group, 3.1 million will spend so much on drugs that they will hit the catastrophic limit, after which the government pays all but 5 percent of their bills. Their overall savings will be 37 percent, higher than the average, the study said.

Another 7.4 million people will enroll in the drug benefit and pay even more than they would have without the Medicare law, according to the Kaiser analysis. Five million people in this group will see an increase of $250 or less, mainly because they have low drug costs.

The rest, 2.4 million people, could see significantly higher out-of-pocket costs because they are projected to lose more generous prescription drug coverage from their former employers, the report said.