Kathryn Bakich, vice president and national director for health-care compliance at Segal, says the first option (accepting the plan-sponsor subsidy) seems to be the preferred choice. “Most of them are taking the subsidy because it really is the easiest route,” she says. “The tax-advantaged status of this payment is another financial attraction,” says Aon’s Morfe. For a company in a 25 percent tax bracket, the tax-free $668 estimated subsidy per retiree works out to about $890. For those in the 35 percent bracket, the figure is closer to $1,035.
The other two options are drawing only cursory interest, say observers. “While some may consider moving their retirees into a Part D plan (option two), since the marketplace doesn’t yet exist, no one knows who the vendors are or what they will charge,” says Bakich. “It’s hard to contract with an entity you don’t yet know.” The third option creates similar hesitation. “Most pharmacies are not equipped to deal, from a systems and technology perspective, with a retiree who has two benefit plans — Part D and a wraparound benefit provided by the employer,” explains Morfe. “While the government says it will make this work in the future, the potential of subjecting retirees at present to unproven pharmacy systems is making this option less than desirable. Our clients have said they don’t want to incur complaints from confused retirees burdened by an untested service.”
Could It Backfire?
Although one of the stated goals of the Medicare Modernization Act is to preserve private-sponsored retiree plans, there is a flip side to Part D: the possibility that companies with prescription-drug benefit plans may eliminate them now that Medicare is in the game. PacifiCare’s Scott speculates that many companies that do not offer prescription-drug benefits will stay the course.
“Now that the government is involved, companies will have the best excuse not to offer drug benefits,” he says. “If drug coverage is available from the federal government, why should a corporate sponsor provide it? That sounds harsh, but I think most CFOs looking at the size of their benefits bill are not going to increase retiree entitlements.”
Scott, in fact, could be a bellwether of the trend. PacifiCare, “oddly enough,” says Scott, does not provide retiree prescription-drug benefits. And, he adds, “we have no plans to put them in place.”
Russ Banham is a contributing editor of CFO.
|Let The Bidding Begin
Some providers expected to participate in Medicare part D.
|Insurer||Regions||Current Drug Plan|
|Aetna||All regions except the territories||Medicare Advantage HMO and PPOs, supplemental plans
(not offered in all 50 states)
|Blue Cross and Blue Shield of Florida||1 region, Florida||Medicare suplemental and Advantage plans|
|Cigna HealthCare||34 regions||Medicare Advantage plan in Arizona|
|Health Care Services||3 regions, Illinois, Texas and New Mexico||Traditional Medicare and Advantage plans|
|Highmark Blue Shield||1 region, Pennsylvania, and West Virginia||Medicare Advantage Plans|
|Humana||31 regions||Traditional Medicare and Advantage plans (HMO and PPO)|
|PacifiCare Health Systems||34 regions||Medicare Advantage plans, Secure Horizons prescription plan|
|Universal American Financial||Minimum of 21 regions across 29 states||Medicare Advantage plans, teamed with PharmaCare Management Services, CVS’s pharmacy benefits management company|
|United Health Care, Ovations||All regions except the territories||Medicare Advantage plans, teamed with Walgreens Health Initiatives|
|Sources: News reports and company data|