Prescription for Malaise?

Providers are rushing to participate in Medicare's new drug-benefit program. Companies are proceeding with caution.

Jump In, the Water’s Fine

All bids for plans sold individually to seniors are due June 6 to the Centers for Medicare and Medicaid Services, the federal agency that administers the Medicare programs. The insurers and pharmacy benefit managers (PBMs) will then negotiate over the bids and thus over how much they will be paid by CMS. By October, contracts will be signed, and come January, eligible providers will administer the drug benefits to the nation’s seniors.

How well the investment will pay off for providers depends mostly on the purchasing choices seniors make. It also depends on how corporations respond. While seniors have until May 15, 2006, to sign up individually for a prescription-drug program, companies have no mandate to offer the benefit to their retirees. But starting in 2006, companies will have several options that will allow them to receive financial rewards if they provide retiree drug coverage.

What corporations will choose to do is uncertain. In fact, CFO called more than a dozen finance chiefs and employee-benefit managers and asked them about their upcoming plans regarding Medicare Part D, but the companies declined to discuss their retiree benefits before the implementation of the new drug program. “Employers are just not at the point where they want to discuss this openly,” explains Dana Sohn, a media specialist at Chicago-based Aon Consulting.

Their reticence is understandable given that companies first have to decide whether or not they want to participate in Part D. They have shied away from providing prescription-drug benefits over the past two decades, because of the high cost of many drugs, the rising cost of health care generally, and the need to slash bottom-line expenses. “If you look at large employers back in 1988, about 66 percent offered drug benefits to retirees,” says Leslie Norwalk, CMS deputy administrator. “By 2002, that percentage had dropped to 37 percent, and we feel it has continued to fall since.”

In this era of corporate austerity, explains Norwalk, “companies that think about where they can cut costs to be competitive are choosing to cut retiree benefits, depending on their union contracts.” But under Part D, there is a major financial incentive to reconsider, she says. “We’re saying to them, ‘Stay in the game, and we’ll write you a check that could be worth hundreds of thousands of dollars.’”

There’s no catch. Companies that decide to offer retiree drug programs under the new Part D program will receive financial rewards. There’s a tax-free subsidy from the government that its actuaries estimate will pay companies on average about $668 per retiree — a sizable chunk of cash for companies with large retiree populations — as well as certain tax benefits. CMS hopes those rewards will be enough to coax companies that currently do not offer drug benefits to alter their stance.

“Clearly, a major reason why an employer or union may want to do this is because it won’t have to pay the entire premium,” says Norwalk. In other words, for those that don’t offer drug benefits, “now may be the time to rethink.”

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