One in four (7.4 million people) who enroll in prescription drug plans offering the new benefit are expected to have higher out-of-pocket spending.

Low-income people with Medicare who sign up for new Part D drug plans and receive the additional subsidies -- an estimated 8.7 million people -- are projected to pay 83 percent less for prescription drugs in 2006 than they would have spent if the Medicare drug law had not been enacted, the report says.

Those who enroll in the new drug benefit but do not receive the low-income subsidies -- an estimated 20.3 million people -- are projected to pay on average 28 percent less out of pocket for their prescription drugs as a result of the new law, the analysis finds.

Most Help for Most Needy

The report, based on a model developed by Actuarial Research Corporation (ARC) for the Foundation, estimates out-of-pocket drug spending in 2006 among the 29 million people that the Congressional Budget Office (CBO) expects will sign up for Medicare drug plans.

"This analysis shows that the prescription drug law will provide the most help to seniors with low incomes and very high drug bills, just as Congress intended," Foundation President Drew Altman, Ph.D., said. "Congress faced budget constraints and had to make tradeoff decisions; the question is whether the law they passed will meet seniors' expectations."

The simulation model generally conforms to CBO's assumptions and projections about Medicare drug benefit spending and participation rates for the new benefit, known as Medicare Part D, and for the low-income subsidy.

The projections of out-of-pocket drug spending are based on the likely response of Medicare beneficiaries to the new law. They do not reflect the effects of supplemental coverage that beneficiaries might obtain or take into account premiums paid by beneficiaries, which are estimated by CBO to average $420 for the new Medicare benefit in 2006.

Help for Beneficiaries with Low Incomes

The Medicare drug law targets substantial resources to low-income beneficiaries. To qualify for the law's low-income subsidies, people with Medicare must have annual incomes of less than 150 percent of the federal poverty level and limited assets, or must qualify for full Medicaid benefits. Those who receive the low-income subsidies are projected to pay 83 percent less on out-of-pocket drug costs in 2006.

However, Part D enrollees who meet the income requirements but do not receive the additional financial assistance, either because of their assets or because they do not sign up for the extra help, will pay substantially more than they would if they were to receive low-income subsidies.

For example, Medicare beneficiaries with incomes that fall below 100 percent of the federal poverty level (in 2004, $9,310 for an individual) who enroll in the benefit and receive low-income subsidies are projected to spend, on average, $90 out of pocket for drugs in 2006. The estimated 2 million people at that income level who do not receive the additional subsidy are projected to spend 10 times as much, or $943 on average.

"Low-income subsidies will clearly make an enormous difference for many seniors struggling to pay for their prescriptions, but unfortunately, many are expected to go without this extra assistance," said Tricia Neuman, Sc.D., Foundation vice president and director of the Medicare Policy Project. "This demonstrates the need for an all-out effort to help low-income people on Medicare get the assistance promised by the new law."