Medicare choices

The federal Medicare legislation that President Bush signed into law in December 2003 has been credited with bringing about the most sweeping changes to Medicare since the program’s inception in 1965.

The full impact of that legislation continues to unfold as the Centers for Medicare and Medicaid Services (CMS) issues its final rulings on the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA).

Beginning Jan. 1, 2006, Medicare beneficiaries may voluntarily enroll in the new outpatient prescription drug insurance through Medicare Part D. Beneficiaries can sign up for this insurance beginning Nov. 15, 2005. Such insurance may be available through a private prescription drug plan (PDP) as well as Medicare Advantage plans (such as HMOs and PPOs, known as MA-PDs). If Medicare-eligible people wait until after May 1, 2006, to join a drug plan, their premiums will increase at 1 percent per year.

“The new drug benefit is expected to provide beneficiaries with a drug cost savings of 15 percent initially, rising to 23 percent within five years,” CMS predicts.

With the Medicare standard drug plan, beneficiaries pay certain out-of-pocket costs.

* Estimated monthly premium: $35

* Initial deductible: $250

* 25 percent of the next $2,000 worth of drugs after the deductible is met

* 100 percent until total reaches $5,100

* $2/5 (generic/brand) co-payment or 5 percent of drug costs from that point on

One goals of the legislation is to reverse the decline in the number of employer groups that offer retiree health benefits. At present, about 40 percent of all employers offer such benefits; in 1988, that was 66 percent.

To help remedy the situation, the legislation provides employers a 28 percent subsidy (estimated average of $668 per beneficiary) for providing their retirees the actuarial equivalent of Medicare’s prescription drug coverage. Employers have several options in terms of retiree drug coverage.

* Offer — or continue to offer — health care coverage that includes Part D equivalent drug coverage.

* Establish a single-employer PDP or Medicare Advantage Plan.

* Offer drug coverage through direct contract with a PDP.

* Offer standalone supplemental drug coverage (to help pay for the Part D deductible and co-payments, and other enhancements)

* Offer integrated supplemental drug coverage in conjunction with a PDP or MA-PD, i.e., Part D and supplemental coverage through the same plan.

* Do not offer drug coverage but pay all or part of the Part D premium for retirees who join a PDP or a MA-PD and receive no subsidy.

* Establish a Health Reimbursement Arrangement (HRA) that qualifies as an employer group plan

The first three options qualify for the employer subsidy, as do some HRAs. Employers also have the option of dropping benefits altogether for their retirees but that is not an option many employers favor. According to a January 2005 survey by Deloitte Consulting, 90 percent of employers that are currently offering drug coverage intend to continue doing so.

The survey found that 55 percent of those who intend to continue to offer drug coverage will offer coverage that is actuarially equal to Medicare’s Part D and accept the tax-free subsidy. That option is popular because it allows companies to see how the market will evolve before they have to make changes.

Employers should begin now to develop their retirees’ plan designs. Managed care organizations with established Medicare Advantage products are a good source of information on the subject.

The Medicare legislation makes it imperative that employers educate themselves about their options. They must thoroughly analyze the population they serve and the dollars they would spend to provide the desired level of coverage. Only then will the true cost of the Medicare legislation be evident.

Linda G. Choiniere is vice president of Medicare for UPMC Health Plan. The Health Plan, with 440,000 members, is part of the University of Pittsburgh Medical Center’s integrated medical delivery system and is the only provider-led health plan in Western Pennsylvania. Reach Choiniere at (412) 454-5693 or [email protected].