Businesses plan to maintain retiree drug coverage

Lawmakers view responses to an employer survey as signs that a subsidy in the Medicare reform law will work as planned.

By David Glendinning — Posted Jan. 3, 2005

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Washington -- Doctors who treat seniors with prescription drug coverage through a former employer aren't likely to see many immediate changes in the way those patients pay for their medications after the new Medicare benefit launches in 2006.

Roughly 58% of such employers responding to a Kaiser Family Foundation survey said they would continue offering full private drug coverage to their retirees next year, with most planning to maintain their current level of support.

Another 17% are making plans to convert their drug benefit into a supplement that wraps around the government-sponsored program. Fewer than one in 10 surveyed businesses anticipate dropping retiree drug coverage altogether when Medicare starts subsidizing seniors' medications.

The companies that decide to maintain a benefit next year that is as good as or better than the one federal officials are implementing will be able to claim government subsidies equal to 28% of each senior's drug costs between $250 and $5,000. The Centers for Medicare & Medicaid Services has estimated that the average subsidy per enrollee will exceed $600 in 2006.

Several lawmakers hailed the report as the best indication so far that the subsidy, which Medicare reform writers designed in a way they hoped would keep employers from dropping out, will work as expected.

"I'm very encouraged by the survey results, which showed that most surveyed employers will offer retiree prescription drug benefits in 2006 in concert with the Medicare prescription drug benefit," said Senate Finance Committee Chair Charles Grassley (R, Iowa), one of the chief architects of the reform bill. "We sought to stem the downward trend in the availability of retiree prescription drug benefits, and the survey is a good sign that we're accomplishing that goal."

Frank McArdle, PhD, who directed the Kaiser survey as the manager of Hewitt Associates' research office in Washington, cautioned that employers could change their minds. Most of the respondents detailed their plans before CMS had issued proposed drug benefit regulations last August.

"We expect that employers will continue to assess their options after the forthcoming [final] regulations are issued and as additional information emerges about the marketplace for prescription drug plans, which could result in future strategy changes," Dr. McArdle said.

The employer response to the Medicare drug statute represented a glimmer of hope in an otherwise sobering report. Although few businesses are dropping their retiree health coverage for current enrollees, many are responding to growing costs by increasing the amount that seniors must pay out of their own pockets.

Workers are learning that they cannot count on employers for health care once they reach retirement age. Roughly 8% of those surveyed by Kaiser reported that they had cut off future retiree benefits last year, and another 11% plan to do so before the end of this year.

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Retiree reprieve

A Kaiser Family Foundation survey of more than 300 large employers offering retiree health plans found that a majority aim to maintain their drug coverage after Medicare starts offering its own plan next year. Businesses that match or exceed the federal benefit can receive as much as $1,330 per year in tax subsidies for each beneficiary.

Employer plans
Will continue offering Rx plan
that qualifies for federal subsidy
Will modify Rx plan to wrap
around Medicare offering
Will discontinue prescription
drug benefits
Haven't decided 13%
Other 4%
Total 100%

Source: Kaiser Family Foundation/Hewitt Associates survey, December 2004

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