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TANF-ACF-IM-2005-02 (The Low-Income Subsidy under the Medicare Prescription Drug, Improvement, and Modernization Act (Public Law 108-173))

Published: September 7, 2005
Temporary Assistance for Needy Families (TANF)
TANF Guidance
Information Memoranda (IM)


State and Tribal Agencies Administering the Temporary Assistance for Needy Families (TANF) Program and Other Interested Parties.


The Low-Income Subsidy under the Medicare Prescription Drug, Improvement, and Modernization Act (Public Law 108-173)


This Information Memorandum addresses the Low-Income Subsidy that is available to eligible beneficiaries, and outreach efforts.


Section 1860D et seq. of the Social Security Act (Medicare Part D – Voluntary Prescription Drug Benefit Program), TANF Information Memorandum TANF-ACF-IM-2004-01.


The President signed the Medicare Prescription Drug, Improvement, and Modernization Act on December 8, 2003.  This became Public Law 108-173. The new law offers Medicare beneficiaries access to subsidized drug coverage beginning January, 1, 2006 and makes other improvements to the program.  However, until the new permanent prescription drug benefit program becomes effective, the law also established the transitional assistance program for Medicare prescription drug discount cards.  On August 4, 2004, we issued TANF-ACF-IM-2004-01 which addressed aspects of the Medicare prescription drug discount card and transitional assistance program.

The transitional program will no longer apply to covered discount card drugs dispensed after December 31, 2005.  The transitional program will phase out by May 15, 2006, or when the beneficiary’s enrollment in the new Prescription Drug Program takes effect, if earlier.  The new Medicare Voluntary Prescription Drug Program, also known as Medicare Part D, will take its place effective January 1, 2006.  The new Medicare Voluntary Prescription Drug Program is voluntary and offers more choices for both Medicare and Medicaid beneficiaries.

The Prescription Drug Benefit Program provides Medicare beneficiaries, whose income and resources are limited, with extra help to cover prescription drug costs.  This help takes the form of subsidies paid by the Federal government to the drug plan in which the Medicare beneficiary enrolls.


The Medicare Prescription Drug Benefit Program under title XVIII, Part D of the Social Security Act (Act) is insurance coverage provided by private companies.  Eligible individuals will choose a drug plan and pay a monthly premium.[1]

While this program does not officially begin until January 2006, the initial open enrollment period for the program starts on November 15, 2005 and lasts through May 15, 2006.  Starting January 1, 2006, many Indian health pharmacies will participate in the Medicare prescription drug program.  While the individual may receive prescriptions through an Indian health facility or have them covered through insurance plans at non-Indian health pharmacies, they will be encouraged to enroll in the Medicare prescription drug program and are advised to check with their individual pharmacies to ensure they enroll with a plan serving their pharmacy.

The Federal government will help with the premium, deductible, and co-payments of the program for beneficiaries who are eligible for the low-income subsidy.  CMS estimates that nearly 11 million beneficiaries with limited means will be able to receive help with their drug costs.  Certain individuals automatically qualify for this subsidy, while other individuals must apply for it.

According to the Centers for Medicare and Medicaid Services’ (CMS) May 25, 2005 publication entitled Guidance to States on the Low-Income Subsidy, the following groups of Medicare beneficiaries will automatically qualify for the low-income subsidy and do not have to apply for it:[2]

  • Full-benefit dual eligibles who are persons eligible for both Medicare and full Medicaid benefits;
  • Supplemental Security Income (SSI) recipients, including SSI recipients who receive a cash benefit but not Medicaid; and
  • Medicare beneficiaries who are participants in the Medicare Savings Programs, consisting of the Qualified Medicare Beneficiary Program, the Specified Low-Income Medicare Beneficiary Program, and the Qualifying Individuals Program.

In May 2005, CMS began sending notices to people who are automatically eligible for the low-income subsidy.  The notice, “Important Information from Medicare about Paying for Prescription Drugs” advises them that they have been automatically awarded extra help in paying for a Medicare prescription drug plan, and do not have to apply to receive it.  People who receive the notice do not have to do anything for now.  But, beginning in the fall of 2005, they will have the opportunity to join a Medicare prescription drug plan in their area.  Medicare will be sending them more information about choosing and enrolling in a plan.  Eligibles served by Indian health facilities are encouraged to discuss enrollment options with their provider or patient benefits coordinator at their Indian health facility.  Also, starting January 1, 2006, full-benefit dual eligibles will receive prescription drug coverage through Medicare rather than through their State Medicaid programs.  (Medicaid will still pay for the other health costs.)  Persons with limited income and resources who do not fall into one of the deemed subsidy groups mentioned above must apply for the low-income subsidy by contacting either the Social Security Administration or their State Medicaid office.  Either agency may make the eligibility determination.  If the individual applies at the State Medicaid office, then the State must screen the individuals for eligibility for the Medicare Savings Program, and offer them the opportunity to enroll in a Medicare Saving Program should they qualify.

Income and resources are considered in determining eligibility for the low-income subsidy.  Generally, the rules of the Supplemental Security Income program will apply in determining countable income and resources.

Title IV-A of the Act and the TANF regulations, as well as title XVIII of the Act are silent on how to treat the subsidy in determining a family’s financial eligibility for a TANF benefit.  As a result, State and Tribal grantees have the flexibility to establish policy on the treatment of this benefit.  

However, the CMS Guidance to States on the Low-Income Subsidy states that countable unearned income for purposes of determining eligibility for the low-income subsidy includes “TANF.”  Whereas, excluded unearned income includes “need-based assistance wholly funded by a State or one of its subdivisions, including State supplementation of SSI but not a Federal/State grant program such as TANF.”  This appears to mean that any separate State program maintenance-of-effort (MOE)-funded benefit would not be considered in determining eligibility for the low-income subsidy.

Because CMS considers a TANF payment in determining eligibility for the low-income subsidy, we recommend against considering any part of the subsidy as income in determining financial eligibility for or payment of a TANF-funded benefit.


We recommend that States and Tribes operating approved Tribal TANF programs work with CMS, SSA, the State Health Insurance Assistance Programs, and/or the Indian Health Service to participate in and pay their fair share of the costs for outreach activities.  States may also conduct their own outreach activities.  Outreach activities help to “get out the word” to clients who should apply for the low-income subsidy to help pay the cost of Medicare prescription drugs.  Also, outreach activities will help to maximize enrollment in a Medicare Prescription Drug Coverage Plan during the initial enrollment period from November 15, 2005 through May 15, 2006.  Prescription drug coverage will begin on January 1, 2006 for persons who join a plan by December 31, 2005.  Persons who don’t sign up with a plan by May 15, 2006 may have to pay a penalty in the form of a higher monthly premium.

States and Tribes may use their Federal TANF or MOE funds for outreach and any needed training activities associated with Medicare’s new coverage for Prescription Drugs.  While section 408(a)(6) of the Act prohibits States from using Federal TANF funds (including commingled funds) to provide medical services (except for pre-pregnancy family planning services), Federal TANF funds may be used for non-medical services that are reasonably calculated to accomplish a purpose of the TANF program.  Outreach to ensure medical coverage would be consistent with a TANF purpose.  MOE funds may be used for outreach activities to or on behalf of eligible families, as long as those expenditures were not also used to meet the requirements of the Medicaid program or any other Federal program.  Hence, any State expenditure made in another Federal program – e.g., Medicaid, for outreach activities – may not be claimed for TANF MOE purposes.


Inquiries should be directed to the appropriate Administration for Children and Families (ACF) Regional Administrator.


Sidonie Squier, Director
Office of Family Assistance

[1] Per section 1860D-1(a)(3) of the Act, a “part D eligible individual” means an individual who is entitled to Medicare benefits under part A (Hospital Insurance) or enrolled under part B (Medical Insurance).  Generally this consists of persons who are age 65 and a U.S. citizen or permanent resident, or a person under age 65 with a disability.

[2] This guidance is available online.   To read the pdf file, you will need a copy of the Acrobat Reader.


Last Reviewed: May 20, 2019