Medicare (search) issued final rules Friday for its new drug benefit, laying the foundation for a program that could cover the drug expenses of some 11 million low-income older and disabled Americans.

The government contends the program also could cut drug costs in half for most seniors.

The regulations also outline various approaches aimed at encouraging employers and unions to continue prescription drug coverage (search) for retirees, including a subsidy that with tax breaks would be worth more than $1,000 per retired employee.

The new voluntary drug benefit, cornerstone of the Medicare overhaul measure that President Bush signed into law in December 2003, is to go into effect on Jan. 1, 2006. Enrollment for low-income people is to begin this June and for other Medicare recipients in November.

"All people with Medicare are now one huge step closer to having a new drug benefit and new health plan options," Centers for Medicare & Medicaid Services Administrator Mark McClellan (search) said at a news conference.

McClellan said the government plans to spend $300 million this year in an information program to advise people about the various options available, including drug benefits through the traditional fee-for-service Medicare system or through managed care plans.

The goal was to make enrollment as easy as possible, McClellan said, "using everything we've learned from the process of the drug card." The temporary discount drug card program has gotten off to a slow start, in part because many eligible people consider the selection of available options and the enrollment process too complicated.

The agency also outlined several changes made in the regulations since a preliminary version was announced in July. They now assure that beneficiaries have access to convenient pharmacies, and charity payments have been added that can count toward true out-of-pocket spending needed before catastrophic coverage kicks in.

Rules also are being put in place to ensure that beneficiaries will be able to get drugs that might not be on the plan's list and to ensure that decisions whether medications would be covered under the plan are made within 72 hours or faster for expedited requests, McClellan said.

The plan guarantees that beneficiaries living in nursing homes will be able to enroll in a drug plan and provides automatic enrollment for people eligible for both full Medicaid and Medicare benefits to avoid gaps in coverage.

McClellan said states will save about $8 billion over the next five years, because they will have to pay only a portion of the drug costs for dual eligible Medicaid-Medicare beneficiaries. States administer the Medicaid programs.

The rules create a new regional Medicare Advantage program for preferred provider organizations, with 26 regions. All regional PPO plans are required to offer benefits identical to those of traditional fee-for-service Medicare.

Under the new program, participants will pay $35 monthly premiums and the first $250 in drug costs. Medicare will pick up 75 percent of the next $2,000 in prescription expenses. After that, a gap is built into coverage during which participants are responsible for the entire drug bills until costs top $5,100, after which the government pays 95 percent.

McClellan said a person with no coverage today who spends about $2,400 a year would save 53 percent under the new program. While many say that still leaves seniors with unacceptable financial burdens, others have complained that the new benefit program is too expensive. Originally priced at about $395 billion, the administration now says it will cost more than $500 billion over 10 years.

In 2006, about 9.8 million beneficiaries will receive drug coverage from employer or union-sponsored retiree plans that are eligible for the new drug subsidy. Medicare said an expected 2.4 million additional people would be covered by 2010 under plans in which companies or unions supplement the Medicare drug benefit.

McClellan said his agency also is acting to prevent employers from gaining windfalls by taking advantage of the Medicare subsidy while shifting parts of the costs of their programs to employees.

Business groups praised the new rules. "Moving swiftly on these prescription drug rules will benefit America's seniors," said Bruce Josten, executive vice president of the U.S. Chamber of Commerce.

The second-ranking Democrat in the Senate, however, Dick Durbin of Illinois, said the 1,500 pages of new regulations had "taken an already complicated program and made it more complex."