Pharmaceuticals: Medicare Modernization Act--2005. End of Year Issue Brief

The enactment of the landmark Medicare Modernization Act of 2003 (MMA) marked the first structural change to Medicare since its inception in 1965. The MMA established the Medicare prescription drug benefit with an intermediate Medicare-approved drug discount card program to be implemented six months after enactment and full implementation in January 2006. The MMA marks the first time the federal government would be providing access to prescription drugs for seniors. Though the merits and cost of the MMA continue to be debated, the impending change to how seniors and the low-income access prescription drugs is on the horizon. Historically, state lawmakers believed it was appropriate to provide assistance to the elderly and, in some states, the disabled and indigent, for the purchase of much needed prescription drugs. Since 1975, states have been creating, terminating and redesigning state pharmaceutical assistance programs (SPAPs) that either provides a prescription drug subsidy, discount card program or full benefit design. Currently, 33 states operate pharmaceutical assistance programs that provide coverage for seniors. Now, due to the MMA, the states' role as provider of prescription drug benefits to seniors is being re-evaluated. The MMA is intended to save costs for the states. Medicare beneficiaries, the bulk of enrollees in state pharmaceutical assistance programs, will now access prescription drugs through the new Medicare prescription drug benefit. The MMA mandates a state to federal government cost shift when the financial burden of those who are eligible for both Medicaid and Medicare (dual eligibles) switch to receiving prescription drug coverage through Medicare, with Medicaid only being an option for drugs not covered by Medicare. Employers, many of which have been cutting prescription drug benefits to retirees because of rising health care costs, will now receive subsidies from the federal government to continue providing prescription drug benefits to retirees. Initially, the MMA appeared to be a fiscal reprieve for states and the need for SPAPs limited. As state policymakers began to analyze the MMA's benefit design and regulations, the cost benefit to the states became questionable. There is a great deal of uncertainty for the states about how they should respond in implementing the MMA. As states review final regulations and full implementation draws closer, the financial impact of the Medicare prescription drug benefit and actual benefits offered by Medicare prescription drug plans are unknown. The states' ability to cut costs as a result of the enactment of the Medicare Modernization Act is questionable. This issue brief describes challenges of MMA implementation for the states and provides an overview of current state pharmaceutical assistance programs and 2005 state legislative activity.