Drug plan impact depends on where you sit

With 80 percent of her income going to pay for prescribed medication, Jeanette Atkins had a close eye on the progress of the drug benefit that passed Congress Tuesday - and like many seniors she's convinced there's not much in it for her.

"I've been watching it on TV. I've been watching it close. My impression is they want to give more to the pharmaceutical companies and the insurance companies. It's not going to help me a bit," says Ms. Atkins, a senior from Orange Grove, Texas.

The fact, however, is that she stands to reap significant benefits. The bill is designed to help low-income seniors most, and she lives on just $10,236 in annual Social Security. Costs for the nine drugs her doctors prescribe run about $8,400 a year. Under the new plan, she may be exempt from paying monthly premiums and deductibles, and face only modest copayments.

But the benefits diminish if she can't show that her assets are worth no more than $6,000, something she's not sure about.

Welcome to the new world of Medicare.

Atkins' situation illustrates how difficult it is for many Americans to know how the complex Medicare reforms -- now heading toward signature by President Bush -- will affect them. Many people will find they win on some fronts and lose on others. The one certainty is likely to be puzzlement.

The massive 681-page bill is jerry-built to fit under a $400 billion limit and leaves big gaps in coverage. Many seniors like Atkins, and others interviewed for this story, are holding off on the cheers, until they see what happens at the pharmacy.

Here's what seniors can expect: Starting in April 2004, all Medicare beneficiaries will be offered access to a drug discount card. In addition, low-income seniors would qualify for an annual $600 subsidy to help pay for the cost of the card, which is expected to cut pharmacy bills up to 25 percent.

After Jan. 1, 2006, seniors can opt for a new prescription drug benefit, with benefits linked to income and actual drug costs. It's the heart of the new plan, and also the most difficult to grasp or to predict the impact.

For Atkins, the new Medicare plan could be a lifeline. Recently, she sold her mother's oak bedroom set to help pay for her pills. Before that, it was the mantle clock. She's running out of things to sell.

The details of the new bill sounded promising, until she learned that there was also an assets test: no more than $6,000 per individual and $9,000 per couple - to qualify as low-income. She recalls being turned down for Texas Medicaid because some household items totaled more than the $4,000. "I'll tell you, it's very complicated. The more you get into it, the worse it gets," she says.

As many as 2.8 million Americans could qualify for this benefit on income but be disqualified because of assets, says Ron Pollack of Families USA. "A little bank account, a life insurance policy ... could put you over the top," he adds.

For many Americans, the biggest challenge will be navigating what experts call the "doughnut" in the new law. That's the gap in federal help between $2,250 and so-called catastrophic levels of coverage. By the terms of the new law, the government pays 75 percent of annual coverage up to $2,250, but then nothing until beneficiaries have paid $3,600 out of pocket.

It means that beneficiaries with high drug costs will still be paying their monthly premiums, about $35, while receiving no help from Washington. Coverage picks up again at 95 percent after drug costs top $5,000, but many seniors worry they won't have the resources to get to that point.

"What do I do if I don't have the $3,600?" says Jane Orto, a former schoolteacher in Coeur D'Alene, Idaho, whose medical problems left her with a $12,000 annual drug bill. Her husband, Gary, has a new job in maintenance. But even with the new law, she sees no way to pay the cost.

For people with income to spare and years to plan, the new Medicare law offers promising new options. One of the least discussed and understood is a plan to create tax-sheltered savings accounts for medical expenses. Any taxpayer can save and withdraw money tax free to pay for medical expenses, provided he or she has a high deductible. Individuals could contribute up to $2,600 a year; families, $5,150.

For George Kriss, a retiree in Leesburg, Florida, such a feature might have been a big help. A successful retailer, he saved carefully for his retirement and planned to live on Social Security plus the income from his investments. Until interest rates plunged, the plan worked.

Now, as he faces sharp increases in drug costs, over $5,000 a year, his income is declining. So he's cutting pills in half, and complaining that Washington lawmakers "don't know what we're up against here."