NDRN Issue Areas - Medicare spend down

Question: My client is enrolled in Medicare and Medicaid. Because she is “medically needy” and has an income above the medically needy income level, my client pays for her prescription drugs in order to “spend down” to the Medicaid-qualifying income limit. How will she be affected by Medicare Part D?

Answer: Your client will now have most, if not all, of her prescription drugs covered by Medicare Part D. As long as she satisfies her spend down obligation as of March 2005, she will be automatically enrolled in the low-income subsidy, like other dual eligibles, to cover most of the cost-sharing requirements for all of 2006. To obtain Medicaid coverage for other health care services, she will need to continue meeting her spend down obligation for the months in which she wants coverage.

Background

Medicaid and “Medically Needy” Recipients with a Spend down

The Medicaid program, an integral part of America’s safety net, currently provides coverage to 53 million individuals. Eligibility in the program is divided into three groups: 1) mandatory categorically needy, 2) optional categorically needy and 3) medically needy. The mandatory categorically needy and the optional categorically needy qualify because they fit into groups of low-income families and children or low-income aged, blind or disabled individuals. Generally, their incomes fall below the categorically needy levels. While the medically needy fit into the same categories, their income or resources often exceed these levels. These individuals can qualify for Medicaid by “spending down” to the medically needy income level (MNIL), which is a single income eligibility standard set by states for all medically needy recipients.²

Federal regulations allow states to choose a budget period between one month and six months for calculating spend down.³ Individuals qualify for Medicaid once they have satisfied the spend down amount for their budget period. Those seeking Medicaid coverage can satisfy their spend down amounts by incurring medical expenses equal to the difference between their countable income and their state’s MNIL. Medical expenses simply need to be incurred, but not necessarily paid, in the period they are used to satisfy the spend down obligation.⁴ Individuals can also use medical expenses incurred by family members or financially responsible relatives toward the spend down as long as those expenses are not subject to payment by a liable third party, such as a health plan or tortfeasor.⁵

Expenses that can be deducted include: 1) premium payment for health insurance or Medicare and cost sharing in the form of co-payments, deductibles and co-insurance, subject to reasonable limits at state option, 2) necessary medical and remedial services not included in the state’s Medicaid plan, also subject to reasonable limits at state option, and 3) necessary medical and remedial services included in the state’s Medicaid plan.⁶ In some cases, old bills may also be used to satisfy a spend down.⁷

Medicare Prescription Drug Benefit

As most advocates are aware, Medicare begins providing payment for outpatient prescription drugs through private prescription drug plans on January 1, 2006. Authorization for this change comes from the Medicare Prescription Drug Improvement and Modernization Act of 2003.⁸ The Medicare Modernization Act (MMA) provides prescription drug coverage for forty million seniors receiving only Medicare benefits as well as six million seniors and individuals with disabilities who are dually eligible for Medicare and full Medicaid benefits. While the law creates a prescription drug benefit under Medicare, it also terminates federal funding of Medicaid prescription drug coverage for drugs available to all dual eligibles under Medicare.⁹

Medicare Part D, as the prescription drug benefit is called, will provide coverage of medications through prescription drug plans or Medicare Advantage prescription drug plans. Dual eligibles will be automatically enrolled in a prescription drug plan. Those wishing to choose another plan can do so during the open enrollment period, which takes place November 15 through December 31, 2005. In subsequent years, dual eligibles will be able to change prescription drug plans monthly.

While Medicare Part D will provide Medicare coverage of prescription drugs for the first time, most beneficiaries who only receive Medicare will have significant new cost-sharing obligations. These costs include a $250 deductible as well as 25% of the total drug costs between $250 and $2250 and 100% of the costs between $2250 and $5100. Dual eligibles and other low-income Medicare beneficiaries may obtain subsidies to pay much of the costs. In fact, dual eligibles should be deemed eligible for the low-income subsidy without having to independently apply. However, non-institutionalized dual eligibles will still have to pay $1 co-payments for generic drugs and $3 co-payments for name brand drugs; those with incomes above the federal poverty level will have to pay co-payments of $2 for generic drugs and $5 for name brand drugs. However, dual eligibles will not need to pay co-payments once the cost of their drugs for the year reaches $5100.

Analysis

Low-Income Subsidy for Medicare Part D

Recently, Centers for Medicare and Medicaid Services (CMS) issued regulations on the issue of dual eligibles’ ability to qualify for a low-income subsidy. According to CMS, at the time a Medicare beneficiary qualifies for Medicaid, she becomes eligible for a low-income subsidy for Medicare Part D.¹⁰ This applies to all dual eligibles as well as those who are recipients of the Medicare Saving Program or Supplemental Security Income.¹¹ If these individuals are reported to CMS by January, they will automatically receive the subsidy for the 2006 plan year without interruption.¹² If, however, their Medicaid eligibility is reported to CMS by their state later than January, they will be deemed eligible for the subsidy for the month reported and the remaining months of the calendar year.¹³ For example, if Wisconsin notifies CMS in March that a Medicare beneficiary qualifies for Medicaid, she will receive the low-income subsidy for ten months, or the remainder of the year.

The same process will take place in subsequent years. Every fall, CMS will compare data from states and from the Social Security Administration on individuals who have been deemed eligible for the subsidy with data CMS has on record for the deemed population.¹⁴ All dual eligibles on the state’s records between September and December will automatically receive the subsidy for the next calendar year.

Individuals with a spend down will likewise become eligible for the low-income subsidy if they incur their spend down as of March 2005.¹⁵ This is also true for beneficiaries with a spend down who may go off Medicaid in any given month or months because they do not meet their spend down obligations for that time period.

Maintaining Medicaid Coverage for Individuals with a Spend Down

One possible result of the implementation of Medicare prescription drug benefit is that dual eligibles with a spend down may find it harder to qualify for Medicaid. This small group currently satisfies their spend down through the purchase of prescription drugs. Once Medicare Part D benefits begin in January 2006, these dual eligibles will have to find other medical expenses to satisfy their spend down requirement. For those months in which their medical expenses are less than their spend down amount, they will not receive Medicaid coverage. If they have Medicare Parts A and B, they should be able to obtain coverage of most medically necessary services they obtained through Medicaid.¹⁶

Advocacy Tips

As January 2006 quickly approaches, advocates can take a number of steps to insure that their dual eligible clients receive the maximum benefit from their Medicare and Medicaid coverage. Advocates should ensure that their clients have been deemed eligible for the low-income subsidy offered by CMS. Clients should receive a letter from the Social Security Administration saying they will receive “extra help.” Advocates should also make sure that their clients are enrolled in prescription drug plans that cover medications their clients need.

For those clients who are enrolled in Medicare and Medicaid with a spend down, advocates should confirm that their clients will meet their spend down obligations between March 2005 and December 2005 or otherwise help them to do so. Those clients who ordinarily satisfy their spend down by incurring prescription drug costs will need additional assistance in understanding which alternative medical expenses will suffice. The following are examples of items advocates and their clients can use to meet the client’s spend down obligations.

¹ Produced by the National Health Law Program with a grant from the Training Advocacy Support Center (TASC) at the National Disability Rights Network (formerly NAPAS). Support for the development of this document comes from a federal interagency contract with the Administration on Developmental Disability (ADD), the Center for Mental Health Services (CMHS), and the Rehabilitation Services Administration (RSA). Assistance was provided by Randy Boyle and Sarah Cox of the National Health Law Program.

² See 42 U.S.C. § 1396a(a)(10)(C)(i); 42 U.S.C. § 1396a(a)(17); 42 C.F.R. § 435.811.

³ See 42 C.F.R. § 435.831. States can also elect to include some or all of the three month retroactive period in the budget period and can set different budget periods for different groups of medically needy beneficiaries. See 42 C.F.R. § 435.831(a).

⁴ 42 U.S.C. § 1396a(a)(17)(D).

⁵ See 42 U.S.C. § 1396b(f)(2)(B); 42 C.F.R. § 435.831(d). See also Centers for Medicare and Medicaid Services, State Medicaid Manual § 3628.

⁶ See 42 U.S.C. § 1396a(a)(17)(D); 42 U.S.C. § 1396b(f)(2); 42 C.F.R. §§ 435.831(e) and (g)(3). See also Strachen v. Perales, No. 46453-90 (N.Y.Sup.Ct., Feb. 3, 1992) (Cl.Rev. #47,864)(Settlement)(recognizing spend down for electricity costs for oxygen concentrator and air conditioner); Doe v. Wilson, No. 81-116 (D.Vt. 1982)(reprinted in Medicare and Medicaid Guide (CCH) ¶ 32,148) (recognizing spend down for non-covered over-the-counter drugs). But see In re Miller, No. 96-SHCA-1148 (Ohio Dep’t of Human Services, Apr. 22, 1996)(refusing to count claimant’s private vehicle transportation costs for dialysis treatment).

⁷ See 42 C.F.R. § 435.831.

⁸ See 42 U.S.C. § 1395w-101 et seq.

⁹ See 42 U.S.C. § 1396u-5(d)(1). See also 42 C.F.R. § 423.906(b).

¹⁰ 42 C.F.R. § 423.773(c)(1)(i). See also Centers for Medicare and Medicaid Services, Medicare Reform FAQ Page, http://www.cms.hhs.gov/medicarereform/medicarereformfaqs.asp, June 27, 2005.

¹¹ 42 C.F.R. §§ 423.773(c)(1)(ii), (iii).

¹² 70 Fed. Reg. 4376, 4376 (Jan. 28, 2005).

¹³ 42 C.F.R. §§ 423.774(b).

¹⁴ Centers for Medicare and Medicaid Services, Medicare Reform FAQ Page, http://www.cms.hhs.gov/medicarereform/medicarereformfaqs.asp, June 27, 2005.

¹⁵ Id. In future years, individuals will have between September and December to meet their spend down obligations.

¹⁶ This depends primarily on what optional services are covered by the state in which the dual eligible resides. For scope of benefits provided under Medicare Parts A and B, see §§ 1395d and 1395k.