Medicare Modernization Act
What is the Medicare Modernization Act?
The Medicare Modernization Act (or more formally Medicare Prescription Drug, Improvement, and Modernization Act) of 2003 established a voluntary prescription drug benefit. This drug benefit is referred to as “Medicare Part D.” The Act also created Medicare Advantage, which replaced the Medicare+Choice program. Medicare Advantage is also known as “Medicare Part C.”
Prescription Drug Benefits
Under the Medicare Modernization Act, Medicare beneficiaries can buy a “standard coverage” prescription drug plan. A “Standard coverage” Medicare Part D plan includes the following:
- Annual Deductible: Beneficiaries must pay 100% of total drug costs until the annual deductible is met ($310 in 2014). Many plans reduce or eliminate the deductible amount
- Initial Coverage: Beneficiaries must pay 25% of the total drug costs until the Initial Coverage limit is met ($2,850 in 2014)
- Coverage Gap: Before the Affordable Care Act, Medicare beneficiaries had to pay 100% of the drug costs between the Initial Coverage Limit and the Out of Pocket Threshold ($4,550 in 2014). Some plans offered additional ‘gap coverage’ which helped pay for drug costs within the coverage gap
- Catastrophic Coverage: Once a beneficiary reaches the out of pocket threshold, the plan covers most of the drug costs with minimal cost-sharing for the beneficiary
The Creation of Medicare Advantage
The Medicare Modernization Act also established Medicare Advantage, which replaced the Medicare+Choice program. These regional coordinated-care plans provide medical and hospitalization benefits.
The Medicare Modernization Act’s creation of Medicare advantage gave beneficiaries the option to receive healthcare coverage from private health insurance companies that can have more benefits (such as vision, dental, hearing, and health/wellness plans) than Original Medicare. These plans can also offer a prescription drug benefit so a separate stand-alone drug plan is unnecessary.
Prior to the Modernization Act, Medicare+Choice (M+C) plans in a payment area were given a monthly payment, called the M+C payment rate, for each enrollee. Each area had a per capita rate which was based on the highest of the following:
- a minimum payment (or floor) rate
- a rate calculated as a blend of an area-specific (local) rate and a national rate
- a rate reflecting a minimum increase from the previous year’s rate.
Changes to the Medicare Modernization Act
In 2010, the Affordable Care Act (also known as Obamacare) reshaped the health insurance marketplace and improved the benefits set by the Medicare Modernization Act. For Medicare Drug Plans lacking “gap” coverage, beneficiaries had to pay 100% of the drug costs between the Initial Coverage Limit and the out-of-pocket threshold prior to Obamacare. As a result of the Affordable Care Act, beneficiaries now pay 47.50% for covered brand name drugs and 72% for covered generic drugs in 2014.