Majority of Employers Will Continue Drug Coverage after Medicare Part D Initiated

January 10, 2005 ( - Nine out of ten employers who currently offer retiree prescription drug coverage intend to continue such coverage after Medicare Part D drug regulations are introduced in 2006.

According to a new survey by Deloitte Consulting, of these 90%, 55% have either decided on or are leaning towards the continuation of a prescription drug plan for their retirees. Those who do this will receive a 28% subsidy from the government under Part D, according to a press release from the company. Another one-fifth are considering supplementing the Part D drug plan with an employee benefit – an option usually referred to as the “wrap-around” or “Medicare coordination”. About 25% are still unsure of that they will do.

Plan sponsors that follow guidelines mapped out in the new Medicare regulations – laid out in the Medicare Prescription Drug, Improvement and Modernization Act (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 Fed Hands Down Medicare Drug Subsidy Guidance ).

Although Medicare Part D will not take effect for another year, employers are beginning to look at its effects, according to the survey, with eighty percent having already begun evaluating the effects on their plans. Twenty-one percent have already decided to keep their existing drug plan while allowing retirees to choose between it an the Medicare Part D plan, while 6% have decided to modify their drug plan to supplement Part D.

Views on the effects on the financial statements of company’s vary. More than 80% ho have not decided what do to believe that the effects on their financial statement of Part D will be very significant or significant, according to the release. Among those who have chosen the wrap-around option, 76% responded in a similar fashion, while 62% of those leaning towards keeping their plan agreed.

Of those having decided to or are leaning towards adopting the subsidy, the major concern is whether the plan will be eligible. Among those favoring the wrap-around option, the major concern – behind the effects on the financial statements – is administrative issues. The third most important factor is the employer’s familiarity of coordinating with Medicare.

Among those who do not know if they will choose the subsidy or the wrap-around, 82% said that they think the clarity of the final Part D regulations are a very significant factor in their ultimate decision. Seventy-five percent claimed that they ability to change the plan in the future will also have a significant effect on their choice.

Survey respondents came from all different company sizes, with 52% having annual revenues of over $1 billion, and about 50% having over 1,000 employees.