T he new Medicare drug benefit, passed by Congress at the end of last year, may save you (or a family member) significant money, especially if your annual drug costs are high. Although I believe the new benefit leaves a lot to be desired, it is a program that every Medicare beneficiary must carefully consider. Unlike most other insurance programs, this one is quite complicated. That’s why it’s important to start planning now. Here’s what you need to know...

The new program does not start until 2006. If you choose to participate, it will partially cover the cost of most prescription drugs your doctor prescribes. In 2006, a number of plans will be available in each state with varying premiums, averaging about $35 per month. Under the law, the premium may rise annually, depending on the amount Medicare spends on prescription drugs from year to year.

Trap: If you do not sign up when you are first eligible for the benefit -- either in 2006 if you are already on Medicare or when you turn age 65 -- you must pay at least 1% more in premiums for every month that you’re not in the program. For example, if you’re a healthy 65-year-old in 2006 but wait 48 months before enrolling in the drug plan, you will pay an extra 48% per month in premiums.

In addition, there’s a $250 annual deductible. After paying out that first $250, each enrollee also must co-pay 25% of his/her drug costs up to $2,250 (minus the $250 deductible). Then it becomes tricky. In order to save the federal government a lot of dough, Congress created a “doughnut hole,” meaning you must pay up to the next $2,850 out of your own pocket until you reach $5,100 in overall prescription drug costs. Then the insurance program kicks in again, but you still have to co-pay $2 for every generic prescription, $5 for brand-name drugs or 5%, whichever is greater.

Trap: All of these numbers can change each year and most likely will. For example, it’s estimated that by 2008 the deductible will be $300, and you’ll need to amass more than $6,000 in annual costs before the high end of the program kicks in again.

How does that translate into real bucks? If you have $6,000 in annual drug costs in 2006, your out-of-pocket costs for drugs (including a $35 premium, co-payments and deductible) will be $4,065. That’s a hefty savings of $1,935. But if your annual drug costs are only $800 a year, you would actually pay $7.50 more by enrolling.

So what should you do? The key is to start planning now. Start tallying your drug costs and be realistic about what your drug needs might be in the future. Go to Medicare’s Web site, www.medicare.gov/medicarereform/minitool.asp, to figure out if you will realize a savings. The drug benefit certainly is not terrific, but most Medicare beneficiaries who participate will come out ahead. If the drug plan doesn’t make economic sense, look into discount prescription cards, which are available from your pharmacy or drug company.