The economic downturn, Governmental Accounting Standards Board (GASB) rule changes, cutbacks in Medicare reimbursement and other Medicare Advantage changes are likely to prompt employers and other plan sponsors to reevaluate options for providing retiree prescription drug coverage.

“Employers are looking to maximize their federal subsidies, reduce administrative burdens and decrease retiree benefit costs,” says Jean LeMasurier, director, Employer Group Practice, Gorman Health Group. “Although the retiree drug subsidy (RDS) remains a popular option, fewer employers are choosing it and that trend probably will continue. This year, there are about 6 million Medicare beneficiaries in RDS plans, down from 6.7 million in 2008.”

Here are several factors that may influence upcoming changes in employer choices:

• Employers who cut back on benefit programs during the economic downturn may not be able to demonstrate actuarial equivalency to qualify for RDS.
• Federal reductions in Medicare Advantage Part D (MA-PD) reimbursement will result in higher premiums and less generous benefits, diminishing the appeal of this option.
• Medicare Advantage plans are beginning to drop their Private Fee for Service (PFFS) product due to a statute requiring dedicated PFFS provider networks by 2011. Employers who migrated to MA-PDs for the benefits of the MA-PFFS medical plan will need to reconsider their options.
• The Series 800 Employer Group Waiver Plan (EGWP) is becoming more appealing to payers subject to GASB 45 rules on reporting of long-term liability for other post-employment benefits (OPEB.) With a Series 800 Prescription Drug Program (PDP), the PDP sponsor collects the federal subsidy and passes it to the employer in the form of a reduced premium. Employers can use the lower premium to fund future retiree costs. Note: Series 800 is a Centers for Medicare and Medicaid Services Health Plan Management System identifier.
• There is an emerging trend for companies to transition retirees from their group plans to individual Medicare Part D plans, and subsidize all or part of the retiree’s premium through a defined contribution plan. Assistance from a Medicare coordinator, such as Extend Health or Transition Assist, can help retirees prepare for and transition to the individual market.

Table 10 offers a summary of options for retiree drug coverage. Employers should work with knowledgeable advisors to analyze the financial, operational and human impact of these options.

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