Retiree Medical Plan Sponsors Anticipate Cost Relief From New Medicare Drug Benefit
Posted on: Saturday, 3 September 2005, 03:01 CDT
BENEFITS
The new Medicare prescription drug benefit, which takes effect January 2006, is intended to address an increasingly conspicuous gap in Medicare coverage. For seniors with access to an employer- sponsored retiree medical plan, that gap is already filled, as most plans for Medicare-eligible retirees serve primarily to provide prescription drug coverage.
To give employers and other plan sponsors an incentive to maintain this coverage, the government is offering to subsidize a portion of the cost for each Medicare-eligible participant covered under an employer plan - provided the plan sponsor demonstrates (through testing) that the benefit it provided is at least as valuable as the average Part D benefits.
But employers have other options, as well. They may choose to amend their current plans to coordinate with coverage from a health plan authorized to provide the Medicare Part D benefit (a "prescription drug plan," or PDP). They can contract with a PDP to provide the Part D benefit to their retirees with or without coverage enhancements, or they may simply discontinue coverage and let retirees find coverage through a PDP on their own.
Many employers have made their decision. According to a survey of 257 retiree plan sponsors with at least 500 employees conducted by Mercer Human Resource Consulting, the majority of plan sponsors (60 percent) will seek the subsidy, at least for the first year. About half of those plan sponsors, however, have not confirmed whether they pass the required tests. (See "Most Likely Response to Medicare Part D Benefit.")
The subsidy is 28 percent of a large portion of the cost of the plan sponsors' retiree drug coverage. Only about one-fifth of those surveyed have calculated the amount of the subsidy; among these, the average expected amount is $578 per member.
MOST LIKELY RESPONSE TO MEDICARE PART D BENEFIT
The next most common response, selected by 14 percent of sponsors, is to offer a plan that wraps around or integrates with a PDP. One-third of these respondents said they would save more money than they would if they accepted the subsidy; others are taking this approach because they want to avoid the cost and effort of equivalency testing (22 percent), or because they believe their plan will not pass the required tests (22 percent). Another 7 percent said they would contract directly with a PDP to provide coverage to retirees.
www.mercerHR.com
Copyright WorldatWork Sep 2005
Source: Workspan
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