Medicare Modernization Act: Overview of Employer

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Medicare Modernization ActOverview of Employer
UnionPlan Sponsor Options

• Employer Policy Operations Group
• Center for Beneficiary Choices

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Overview of Plan Sponsor Options

• Provide drug coverage in lieu of the Medicare
  drug benefit and receive Retiree Drug Subsidy
  payments for a portion of drug costs
• Provide drug coverage through a separate
  stand-alone drug plan to supplement the Medicare
  drug benefit
• Purchase enhanced drug coverage from a Medicare
  prescription drug plan (PDP) or Medicare
  Advantage plan that includes prescription drugs
  (MA-PD) to supplement the Medicare drug benefit
• Direct-contract with CMS to become a Medicare PDP
  or MA-PD and provide customized drug coverage, or
  purchase customized drug coverage from a Medicare
  PDP or MA-PD, pursuant to a CMS waiver

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Plan Sponsor Options (continued)

• Plan sponsors can
• Offer different options to different retiree
  groups
• Offer more than one option to retirees
• Change the option(s) offered in subsequent years
• Employer or union can pay part or all of
  retirees Medicare drug premiums

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Which Option Are Plan SponsorsMost Likely to
Choose?

• Surveys suggest most plan sponsors expect to
  continue offering retiree drug coverage and apply
  for the retiree drug subsidy for 2006
• The retiree drug subsidy is generally considered
  the easiest, most straightforward option because
• Plan sponsors have more time to apply for the
  subsidy than waiver options
• The subsidy can be implemented with minimal
  benefit design changes (which is especially
  advantageous to plan sponsors with limited
  ability to alter benefit design)
• Choosing the subsidy approach simplifies retiree
  communication and minimizes disruption

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Retiree Drug Subsidy Option (continued)

• The subsidy will pay 28 of the allowable retiree
  costs attributable to gross covered prescription
  drug costs
• For 2006, pays for costs between 251 (cost
  threshold) and 5,000 (cost limit) net of
  rebates, discounts, etc.
• Cost limit and threshold to be indexed after 2006
• Subsidy only paid for certain drug expenses of
  Medicare eligible retirees, spouses and
  dependents
• Subsidy only paid for retirees not enrolling in
  Medicare Part D
• Subsidy paid to plan sponsor Employer or Union
• Subsidy tax free for taxable sponsors

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Retiree Drug Subsidy Option

• Eligibility requirements include
• Submitting attestation that retiree drug plan
  meets actuarial equivalence standard
• Annually submitting timely application (Sept 30
  for 2006) with retiree and dependent names, SS
  or HIC, DOB, relationship to retiree (updated
  monthly unless VDSA)
• Providing claims-related data (end of year
  reconciliation required within 15 months after
  end of plan year)
• Maintaining records for audits 6 years
• Disclosing creditable coverage notices to CMS and
  Part-D eligible individuals

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Retiree Drug Subsidy Option (continued)

• Actuarial equivalence determined by two-part
  test
• Total or gross value test sponsor benefit is
  at least equal to the Medicare standard drug
  benefit
• Net value test takes into account retiree and
  sponsor contribution toward cost of coverage
• Together, the two-part test minimizes windfalls
  and presents a good balance for both
  beneficiaries and plan sponsors

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Retiree Drug Subsidy Option (continued)

• Insured arrangements can participate in the
  subsidy program
• Flexible rules for
• Plans with multiple benefit levels or coverage
  options
• Non-calendar year plans
• Plans with integrated premiums (i.e., no separate
  premium for prescription drugs)
• Choice of timing of subsidy payments

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Factors to Consider

• Subsidy approach minimizes change to current plan
  and retiree communications
• Subsidy provides significant financial assistance
  even when sponsor not taxed at highest tax rate
• Other approaches may require more lead time to
  implement and communicate to retirees
• Contractual or collective bargaining commitments
  may impose greater constraints on implementing
  other approaches
• May prefer to wait to see how the drug plan
  market evolves before committing to other
  approaches

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Choosing an Option Next Steps

• Get help from advisors in determining relative
  financial and operational impact of available
  options
• Talk to vendors about impact on current business
  relationships
• Identify and assess potential obstacles
• Constraints on ability to change plan design
• Ability to meet applicable deadlines
• Communications challenges (e.g., complexity,
  adverse retiree reaction to change)

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Creditable Coverage

• All entities must provide disclosure by November
  15 of each year.
• Important not to oversell significance
• It tells recipient whether they will/wont be
  subject to later enrollment penalty more than
  63 day break in creditable coverage
• It tells them whether their plan, on average,
  pays out as much as Medicare drug plan
• It does NOT take their premium contribution into
  account
• It does NOT take into account whether they are
  eligible for the Medicare low income subsidy

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Creditable Coverage

• Released guidance and model language in May
  2005 and Medigap mandatory notices in July 2005
• Launched creditable coverage webpage
  www.cms.hhs.gov/medicarereform/credcovrg.asp
• Addresses transition year notice, ability to
  incorporate in other communications
• Subsequent guidance will address additional issues

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For more information.

• http//www.cms.hhs.gov/medicarereform/pdbma/employ
  er.asp -- employer/union plan sponsor guidance
  and summaries
• http//www.cms.hhs.gov/medicare/cob/ --
  information about COB Agreements and Voluntary
  Data Sharing Agreements
• http//www.cms.hhs.gov/mailinglists/default.asp?au
  dience15 subscribe to CMS-EMPLOYER-PDBMA
  listserv for email notification of new
  developments
• http//www.cms.hhs.gov/mailinglists/default.asp?au
  dience-16
• - subscribe to CMS-RDS LISTSERV for email
  developments related to RDS issues
• http//mmaissuesform.cms.hhs.gov -- submit
  questions about MMA and the final regulation,
  including issues relating to employer/union plan
  sponsors