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from the cover of 'Medicare & You 2006', the official government handbook

Medicare Prescription Drug Coverage : what are your costs?

Above graph is very informative; for example, if you spend around $4500 yearly on drugs it makes sense that you die in June. On the other hand, if you spend around $6750 yearly on drugs your death in April is a better deal while your death in September makes no sense at all.

from p. 53 of 'Medicare & You 2006', the official government handbook

If you are on Medicare, right now you are bombarded with leaflets and booklets about the new (next) big step: Medicare Prescription Drug Coverage. You may immediately notice that two levels of drug costs, $2250 and $5100 (=2250+ 2850), are of special importance: they divide the coverage into notably different sections of coverage. Sharp transitions between sections of a particular model are usually a sign of either primitive modeling or hidden intentions or both.

Letís first find out at what yearly drug cost (YDC0) your payments under the coverage, at monthly premium of $37, equal the drug costs:

YDC0 = 250 + 0.25*(YDC0 - 250) + 12*37

The result is YDC0 = $842, which is 37.42% of the reference value of $2250. So, if you spend less than $842 yearly ($70 monthly) for drugs, you pay more under coverage than the real drug costs; see the graph on the left where uniform spending over 12 months is assumed. If you spend from 50% to 100% of the $2250 reference value, your actual benefits range from 19% to 47% of the drug costs although you may be under the impression that the benefit is 75% in that section of the coverage. It becomes even trickier in the section from $2250 to $5100 where $2850 of your expenses do not draw any benefit. At this point you may realize that private companies which provide the coverage under the Medicare shield are not humanitarian organizations. A thought may cross your mind that these companies know of many old people spending from $2250 to $5100 yearly on drugs.

Of course, the above mentioned companies have an incentive for you if your current drug costs are low and you would like to ignore them; it is called a penalty:

from p. 40 of 'Medicare & You 2006', the official government handbook

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Krešimir J. Adamić