Prepare for Red Tape
Opting to participate, however, means facing an array of administrative and communication choices associated with Medicare Part D. Blame it on the Medicare Modernization Act of 2003, which gave birth to Medicare Part D and its complex payment methodologies. The system is based on a standard deductible/copayment model in which seniors and the government share the cost of prescription drugs. In 2006, the first $250 of drug expenses, for example, will be borne by seniors as a deductible. They must also fork over 25 percent of the next $2,250 in claims and 100 percent of the cost for prescription drugs between $2,250 and $3,600 — what Norwalk calls the “doughnut hole” in the law. After a total of $5,100 in all drug spending (which includes the amount the beneficiary pays — the $3,600 — and the amount the plan pays) is reached, seniors will pay 5 percent of total catastrophic drug costs.
Companies that elect to incorporate Medicare Part D into their existing benefits have three basic options, although there are permutations within each.
The first option is to simply accept the plan-sponsor subsidy of $668 per year. In effect, plan sponsors offer their benefit plans as a substitute for Part D. “If a plan sponsor decides to go this route, it will receive a check from the government representing 28 percent of annual prescription-drug spending between $250 and $5,000 per retiree — the government’s figure of roughly $668 per retiree,” says Michael Morfe, vice president and national content expert on Medicare Part D at Aon.
This is easier said than done, however. “You must pass an actuarial equivalence test, which in its simplest form means that your deductibles, coinsurance, and cost-sharing are as good as those found in the Medicare plan,” explains Morfe. Both Aon and The Segal Co., a New York-based employee benefits consulting firm, can conduct actuarial equivalence tests for companies, and, assuming they pass, provide the required “actuarial attestation” that employers must file with CMS by September 30, 2005, to receive the subsidy in 2006.
The second option for an employer is really to offer an enhanced version of the first. For example, the employer can contract with CMS to become an official Prescription Drug Plan (PDP) under Medicare and offer the official Part D benefit to retirees themselves. To do that, it must file an application with CMS and submit its formulary for review by June 6 and a bid by July 1. Alternatively, the employer can hire an outside PDP or Medicare Advantage plan to serve as its employer-specific plan. Health insurers Aetna, Blue Cross/Blue Shield, or PacifiCare, or PBMs like Caremark, Medco, or Express Scripts are all developing competitive bids.
The third option is to offer a separate benefits plan that “wraps around” Medicare Part D. CMS’s Norwalk says companies pursuing this route can fill in retiree drug-benefit voids. “The way retiree coverage works with Medicare generally is for employers and unions to wrap around the Medicare benefit, for instance, through a supplemental plan in which Medicare pays 80 percent of the cost of a physician and the corporation picks up all or a portion of the remainder,” she explains. “With Part D, the employer could pick up the cost of the deductible in a supplemental plan or a percentage of the doughnut hole. Or they could pick up 25 percent of total out-of-pocket costs. There are many different [ways for] employers to step up to the plate and offer a competitive benefit, which in the long run will help them attract and retain higher-quality employees.”