Medicare Part D
As if the Social Security prescription drug program, also known as Part D, were not already confusing enough, the final regulations implementing the program, released last January, ran to over 1,500 pages. The employer subsidy part alone is confusing enough (the application is six pages long) to make some companies figuratively throw up their hands in despair and forego any possible subsidy.
The Medicare prescription drug program has been in effect since 2004 in the form of drug discount cards. As of January 1, 2006, it moves into the second phase in which eligible retirees will enroll and pay an estimated monthly premium of $45, and then pay a $250 deductible, 25% of costs between $251 and $2,250, then everything between $2,251 and $5,100 (the so-called "doughnut hole"), and 5% costs over $5,100. Or, if the retiree has coverage through a plan sponsored by a former employer, he or she can stay in that plan.
The subsidy is available for retiree coverage, not coverage for the so-called "working aged," and was designed to encourage employers to maintain drug plans covering retirees by offering tax-free payments of 28% of gross retiree prescription drug costs between $250 and $5,000 per person. To qualify, however, the employer's plan must provide coverage that is actuarially equivalent to the Medicare coverage, and the eligible retirees and/or spouses must decline the Part D coverage. The effect, of course, will also be to save the government money.
Under normal circumstances, if a retiree does not enroll in Part D at the time he or she becomes eligible, there will be a penalty for late enrollment. This is similar to Part B, which is also voluntary and requires payment of an additional premium. A retiree can avoid this Part D late enrollment penalty, however, if he or she is covered by an employer-provided prescription drug plan that provides "creditable" coverage. (Note that this creditable coverage is different than creditable coverage under HIPAA.) Creditable coverage is coverage that, on average for all plan participants, is expected to pay as much as the Part D coverage.
All this requires an employer to first determine whether the drug coverage it provides to retirees is creditable and then notify all eligible retirees (and presumably those approaching retirement) of their options. Those are either enroll in Part D, in which case the employer does not get the subsidy for that person, or retain their coverage in the employer's plan and avoid any late-enrollment penalty so long as that plan is creditable. If the retiree does enroll in Part D, the regulations permit the plan sponsor to drop that individual from the employer's plan, although this may run afoul of other restrictions, particularly those in union agreements.
While it may be possible for an employer to determine whether or not its prescription drug coverage is creditable, in order to apply for the subsidy, that fact has to be attested to by an actuary. We understand that some insurance companies are offering this for their group policyholders at little or no cost. With that attestation, the application must be submitted to the Center for Medicare & Medicaid Services (CMS), no later than September 30, 2005 for the January 1, 2006 implementation date. Thereafter, they are due annually 90 days prior to the beginning of the employer's plan year.
The employer also has to certify that the creditable status of the plan has been or will be disclosed to plan participants and to CMS. This disclosure has to be sent out prior to the Medicare annual coordinated enrollment period that begins on November 15. A model disclosure notice is available on the CMS web site.
Finally, enrollment information about retirees and dependents has to be submitted electronically to CMS and periodically updated, and year-end aggregate incurred cost data must be submitted (monthly, quarterly or annually) in order to receive payment. Data on individual claims is not required, but such information must be maintained for six years for audit purposes.
In spite of all this, a recent survey by a human resources consulting firm indicated that 60% of employers plan to apply for the subsidy this year. About one-fourth of these intend to use some of the subsidy to reduce the retirees' share of the cost of coverage.
-- Christopher B. Ashton, CEBS
Vol. XVIII, No. 4
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The saga of the so-called "brokergate" continues. Those of you who have done business in the past with insurance brokers Marsh and/or Aon have probably received communications from them regarding the settlement agreements they entered into with various state regulators. In the case of Aon, there was also a class action lawsuit that is being settled, and settlements have also been announced in connection with Willis Group and Arthur J. Gallagher Co. In the case of Marsh and Aon, these communications have shown the amount of contingent commissions they received, by policy for each insured, and the proportion of those commissions that will be returned to insured. This latter amount is calculated according to an undisclosed formula that was apparently agreed to by the regulators who took the brokers to task in the first place. Consequently, about the only verifiable element in any of this is the amount of the premiums shown as paid. In this issue, we discuss a variety of subjects, from the Medicare prescription drug program, and things to look out for in Crime policies, to ways for municipalities to deal with a burgeoning goose problem. From controlling retiree drug costs to controlling bird droppings, that's a wide range of topics, even if we do say so. --- Ed.
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