GAO: Plan Sponsors Undecided on MMA Retiree Drug Coverage Options

February 14, 2005 ( - A study of plan sponsors' reaction to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) shows that most are still undecided on which drug coverage option they will choose for their Medicare-eligible retirees.

According to the report – from the Government Accountability Office (GAO) – 13 of 15 plan sponsors interviews were undecided with respect to some or all of their retirees. However, the report found that many were leaning towards the federal subsidy as a primary option. Two had chosen the subsidy option for all retirees already, while 10 had chosen the option for some of them or were considering such a move. Three said they would or did not plan to choose such an option.

The survey also found that when plan sponsors had set financial caps on their retiree health benefit obligations, they were often considering wrapping benefits around Medicare’ drug benefit for all of their retirees or for those retirees whose benefits would not qualify for the subsidy.

Many were also waiting to see how the market for other MMA options – such as private health plans – turned out before making a decision.

In response to questions about the affects of MMA on retiree drug coverage, plan sponsors claimed that they do not immediately see the need to reduce current drug coverage they provide to Medicare-eligible retirees. However, increasing health costs might cause them to reduce coverage in the future, the report showed.

Benefits consultants who were questioned for the survey indicated that they do not see MMA inducing employers who do not offer prescription drug coverage to retirees currently to begin providing such coverage or to supplement the Medicare drug benefit.

Under Medicare Part D, plan sponsors that follow guidelines mapped out in the new Medicare regulations – laid out in the MMA – will be eligible for a 28% subsidy of their drug costs between $250 and $5,000. The estimated value of the subsidy is $611 per beneficiary in 2006 and for employers with tax liability, the tax-free retiree drug subsidy would be equal to a taxable subsidy of $855 at the average corporate marginal tax rate and $940 at the 35% marginal tax rate paid by many large companies, the US Department of Health and Human Services (HHS) said in a news release (See Feds Hand Down Medicare Drug Subsidy Guidance ).