Prescription Subsidiary Available Only By Offering Medicare 'Equivalent'

January 21, 2004 ( - US House Ways and Means Committee Chairman William Thomas (R - California) has sent a letter to Health and Human Services (HHS) Secretary Tommy Thompson to clarify to Congress' intent in offering an employer subsidiary in the new Medicare Prescription Drug, Improvement and Modernization Act.

In the letter, Thomas outlines that for employers to receive a federal subsidy for offering a prescription drug benefit to their retirees, the benefit must be at least “actuarially equivalent” to the standard Medicare benefit.   Thus, if a company reduces its prescription drug coverage below Medicare’s standard benefit, the organization would not qualify for subsidies created in the Medicare law, Thomas penned.

“Recently, some have asserted that employers are entitled to the subsidy regardless of how much cost-sharing they require their retirees to pick up,” Thomas’ letter said.   “This assertion is not supported by the legislative language in the statute or congressional intent.” As evidence of this contention, Thomas points to Section 1860D-22 of the new law.

>Additionally, Thomas emphasized that the new regulation gives the HHS secretary the authority to audit the adequacy of prescription drug coverage offered by employer plans seeking federal subsidies.

Plan sponsors that follow guidelines mapped out in the new Medicare regulations will be eligible for a28% subsidy of their drug costs between $250 and $5,000.   The subsidiary comes in addition to plan design flexibility as well as more ability to change formularies and networks – all of which are aimed at encouraging employers to continue sponsoring plans (See  Medicare Bill has Implications for Plan Sponsors).