Majority of Plan Sponsors to Seek Medicare Drug Subsidy

July 1, 2005 ( - According to a new survey of 257 retiree plan sponsors with at least 500 employees conducted this month by Mercer Human Resource Consulting, 60% will apply for the new Medicare drug subsidy.

Results of the survey, according to a Mercer news release, are similar to previous surveys on employers’ plans for the new Medicare benefit, which is now estimated to provide employers with around $578 per plan member. (See EBRI: 58% of Employers Continue Prescription Drug Coverage )

More good news from the Mercer survey is that about one fourth of the plan sponsors receiving a subsidy intend to use at least 50% of it to decrease the retirees’ share of the cost of coverage or to improve benefits.

Fourteen percent of sponsors in the Mercer survey planned to amend their plan to coordinate with coverage from a prescription drug plan, partly due to the costs associated with testing to see if they qualify for the subsidy. Seven percent plan to contract with a commercial vendor to provide a prescription drug plan, 5% plan to terminate coverage, and 14% plan to not make any changes right away, according to the Mercer announcement.

The cost of testing obviously would be a bigger burden to employers of small companies than larger ones, and this fact was reflected in the findings of the Mercer survey. Thirty six percent of the employers with 500 to 999 employees plans to apply for the subsidy, compared to 64% of employers with 1,000 or more employees.

Overall, though, the survey provides good news for Medicare-eligible retirees since it means most employers plan to continue providing coverage. “The cost reductions provided under the Medicare changes will certainly help employers continue to provide coverage to their Medicare-eligible retirees,” said Derek Guyton, a Mercer consultant, in the announcement.

The new benefit that takes effect in January 2006 offers to subsidize a portion of the cost for each Medicare-eligible participant covered under an employer sponsored retiree health care plan, but also provides other options to employers. Those other options include amending their current plan to coordinate with coverage from a prescription drug plan authorizedto provide the Medicare Part D benefit or discontinuing coverage and letting retirees find their own coverage, noted the news release.

T o get the subsidy, plan sponsors have to show that their coverage is as good as, or better than, Medicare’s standard prescription drug benefit. The regulations issued include a two-part test to determine whether this standard, referred to as “actuarial equivalence,” has been met. (See HHS Releases Final Medicare Drug Subsidy Regs and CMS Releases ‘Actuarial Equivalence’ Guidance on Retiree Drug Subsidy ) The concern has been whether employers will be willing to spend the money and effort for testing in order to qualify for the subsidy.

-Rebecca Moore