Medicare Compliance & Reimbursement

In addition, low-income beneficiaries will get an additional up-front boost in the form of $600 federal subsidies to use with their cards in 2004 and again in 2005.

The highly political argument in favor of this approach is that, particularly when it comes to prescription drugs, Americans are long accustomed to receiving assistance - not true insurance - from their employer-sponsored health plans.

That being the case, lawmakers expect that people who don't spend much money on drugs in a given year would resent a plan that didn't offer them close-to-first-dollar assistance, essentially repaying some of what they spend in premiums even in years when their health needs are low. This, of course, runs counter to the insurance principle that paying premiums in lucky, healthy years is the price for secure knowledge that catastrophic aid will be there when luck runs out.

Medicare will pay 75 percent of beneficiaries' costs between $250 and $2,250, in hopes that fairly hefty assistance for those who are healthy enough to go out and vote will forestall a replay of senior anger over 1988's sensibly constructed but ill-received Medicare catastrophic-coverage bill, which Congress repealed only a year after passing it.

At least one early House version of the current legislation - developed in the mid 1990s - did not have this much-bemoaned feature. That bill, which offered a fairly hefty pot of popular drug assistance for low spenders, was quickly revised, however, when critics pointed out what it didn't offer: catastrophic assistance for the sickest beneficiaries, the very people that lawmakers wanted to help through Medicare drug legislation.

Since then, there's been no question that the final bill would include the doughnut hole. With only so much money in the federal budget to allot for drug coverage - and the perceived political necessity of offering low-end assistance as well as high-end insurance - the only remaining question had been what size the hole would be.

In the completed bill, the hole opens at $2,250 in total drug spending. From there on, all middle- and higher-income beneficiaries are responsible for 100 percent of their own drug costs until they have spent $3,600 out of pocket for prescription drugs in a given year. The $3,600 out-of-pocket threshold amounts to $5,100 in total drug spending, not counting beneficiary premiums, which will vary among drug plans and are estimated to average about $35 a month in the first year.

Above the catastrophic limit of $5,100 in total spending, most people would pay 5 percent of their own costs, with the federal government picking up the remaining 95 percent of the tab.

Drug plans will share insurance risk with the government on the risk-corridor approach that was favored by the Senate, with the plan taking 50 percent of risk for costs between 102.5 percent and 105 percent of its bid and 80 percent of risk for costs exceeding 105 percent. Plans also may bid to take a lesser share of insurance risk. However, all plans must bid at the same time and declare whether they want to be full-risk or partial-risk participants.