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| Posted on: Thursday, June 2, 2005 |
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Notification to Employees
Employer medical plans will be required to certify that their Rx coverage either exceeds or does not exceed a Medicare ’creditable coverage’ standard. While specific details about the evaluation process are not yet finalized the likely goal will be to test whether or not the plan is more generous than Part D. In 2006, after a $250 deductible, Medicare Part D will typically cover 75% of allowed Rx costs up to $2250 and 95% after out of pocket costs reach $3600. Part D premiums in 2006 will be about $35/month indexed in future years to cover 25% of plan projected costs. Greater coverage and lower premiums are available for lower income participants. Many, but not all group plans, will pass the creditable coverage test.
The results of the certification test must be provided to the Centers for Medicare & Medicaid Services (CMS) and by way of Notice to ’Part D eligible’ employees/individuals which can be included in a plan’s Summary Plan Description (specific content requirements will be described in future CMS guidance). Eligible employees/individuals can include active workers and retirees enrolled in Medicare Part A and/or B and who live in a Part D service area.
When Rx benefits exceed the creditable coverage standards, Medicare eligible participants will likely opt out of Medicare Part D. If Rx benefits do not, Medicare eligible participants are likely to enroll in Part D when first eligible to avoid a break in creditable prescription drug coverage for a continuous period of 63 days or more and being assessed a higher premium for late enrollment. This notice is to be initially provided to eligible employees no later than 11/15/05 to allow them to make Medicare elections for 1/1/2006.
Coordination of Benefits
Plans covering 20 employees or more have been and will be ’primary’ for active employees, that is, pay first when a Medicare recipient is covered by both an employer plan and Medicare. In this case, no plan changes are needed.
A plan is secondary, that is, pays after Medicare for retirees and certain kidney failure patients. Current claim processing rules will require an explanation of benefits from Medicare (the primary plan) to determine what it paid and then pay a supplemental amount determined by the retiree’s plan provisions. Such supplemental amounts are typically either capped at what active employees would have received or 100% of the allowed cost. Rx Claims systems’ ability to handle this process automatically at the point of purchase is not yet readily available. As a high volume claim, Rx COB processing by an Insurer or TPA could be cumbersome for claimants and expensive for plans.
Planning tip: While it may first appear radical, excluding Rx coverage from retiree plans should be considered, however, this should not be considered until it is resolved whether or not retiree benefits can be less generous for retirees than those for active employees. In a recent court case, AARP has challenged proposed EEOC regulations that would allow employers to reduce, change, or eliminate retiree health benefits when retirees become eligible for Medicare, without violating the Age Discrimination in Employment Act (ADEA). This case is currently in the appeals process.
Available Subsidy when Retirees are Covered by Employer Plans
Larger employers and union plans, those with typically hundreds to thousands of retiree participants, should review the drug subsidy credit qualification process described below. Qualification would provide an annual, tax free subsidy of 28% of drug costs paid that are >$250 and <$5000 for participants who opt out of Medicare Part D (2006 figures). The qualification and ongoing certification process deserves careful review as for some, the claims cost and compliance and actuarial certification process may cost more than the value of the subsidy. The credit is designed to entice employers to continue retiree Rx coverage thereby relieving Medicare of that cost.
Criteria to Obtain a Retiree Drug Subsidy
The primary steps in the retiree drug subsidy process include:
Step One: Submit (electronically or otherwise) an application by September 30, 2005, to qualify for the retiree drug subsidy beginning January 1, 2006. In subsequent years, calendar year plans submit applications by September 30 of each year; non-calendar year plans submit applications 90 days prior to the beginning of each plan year.
Step Two: Attach to the application an actuary’s attestation that the plan meets the MMA’s actuarial equivalence standard. Actuaries have considerable flexibility in the use of simplified actuarial calculations, treatment of multiple benefit options, and allocation of premiums between drug and non-drug coverage. Once the actuarial equivalence standard is satisfied, plan sponsors have full flexibility in plan design. This means most plan sponsors can maintain their current high quality, comprehensive coverage without changing plan design or cost-sharing.
Step Three: Certify that the creditable coverage status of the plan has or will be disclosed to plan participants and CMS. This disclosure can be incorporated into other plan communications (e.g., those provided in accordance with ERISA reporting and disclosure requirements). CMS will be providing guidance soon on how to provide these disclosures. This guidance will include sample language.
Step Four: Electronically submit and periodically update enrollment information about retirees and dependents. Entering into a voluntary data sharing agreement with CMS makes the process even easier. Information about how to enter into these voluntary data sharing (VDSA) agreements with CMS is available online at: http://www.cms.hhs.gov/medicare/cob/
Step Five: Electronically submit aggregate data about drug costs incurred and reconcile costs at year-end; submission of detailed individual claims data is not required (though claims records must be maintained for audits for six years). Plan sponsors can choose whether to submit data and receive payments monthly, quarterly or annually. CMS will be providing additional guidance soon on the details of how to submit data electronically.
Future Planning
Many post retirement plans covering persons eligible for Medicare exist today because Medicare did not cover prescriptions. Medicare D could well prompt a reexamination of those retiree benefit commitments in general.
In Conclusion…but Stay Tuned!
More guidance is promised from CMS. In the meantime, keep this matter on the employee benefits ’radar’ for the 2005 fall planning cycle. To be notified by email about CMS news and activities of interest to employer sponsors, subscribe to employer issues listserv at http://www.cms.hhs.gov/mailinglists/.
For additional information, click on the following links:
CMS Employer Information
Overview of Creditable Coverage Issues for Employers
Overview of Retiree Drug Subsidy Option
Should you have any additional employee benefit questions or would like to discuss this material in detail, please don’t hesitate to call the Denman Team.
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