The PwC report asserted that the arrangement could potentially reduce employers’ pre-tax cash cost by 20% or more below current levels under the Retiree Drug Subsidy (RDS) program and would not require a substantial change from the current drug benefit design from retirees’ standpoint.
The structure of the Employer Group Waiver Plan with wrap-around secondary plan consists of two separate but integrated programs, according to PwC. The first is a certain type of Medicare Part D program offered exclusively to the employer’s retirees called an Employer Group Waiver Plan, (EGWP). The second plan is a non-Part D plan the benefits of which are integrated or “wrapped” around the EGWP plan’s benefits so that the combined benefits reflect the employer’s original benefit design prior to the EGWP + Wrap conversion. Both plans are typically self-insured.
The PwC report offers an explanation about the savings from EGWP + Wrap:
In recent guidance, the Center for Medicare and Medicaid Services (CMS) provided that the 50% Discount Program under health care reform applies to EGWPs as well as traditional Part D plans. Under the health reform law, 50% of the cost of brand name drugs incurred in the Part D donut hole will be paid for by participating drug manufacturers, starting in 2011. CMS said that the discount would be applied before any additional coverage provided under a non-Part D plan, “giv(ing) rise to significant savings potential for a certain benefit configuration under which any brand name prescription drug coverage in the Part D donut hole is provided by a secondary, non-Part D plan,” PwC said.
A lesser source of additional savings comes from CMS guidance that provides that amounts paid under the Discount Program count as if paid by the participant, for purposes of meeting the Out-of-Pocket Threshold for catastrophic coverage under Part D. This will result in more members qualifying for catastrophic coverage under Part D, which is primarily funded by reinsurance dollars from CMS, PwC said.
The arrangement has its potential pitfalls, according to PwC. For instance, EGWP + Wrap plans are more complex to administer. While much of the burden is handled by the drug benefit vendor, the vendor will charge additional fees for administering these plans. However, the cost savings from converting to an EGWP + Wrap will likely more than offset these additional costs. Another consideration is the increased level of retiree communications required on the EGWP plan, which when combined with additional communications explaining the secondary plan and overall impact on benefits may confuse some retirees.
Finally, for many employers, it may be too late to restructure their benefit program in time for a calendar year 2011 implementation. However, if the proper arrangements and management decisions are made before the end of fiscal year 2010 for implementation at a later time, it may be possible to reflect the substantial reductions in ASC 715-60 liability by fiscal year-end 2010, the PwC report said.