To address the insufficiency of prescription drug benefits for senior citizens in the United States, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. From this act, Medicare Part D was created and will become effective January 1, 2006. Part D is a voluntary program providing outpatient prescription drug coverage for Medicare beneficiaries who enroll in the program. Plan sponsors providing prescription drug benefits need to be aware of their obligations and choices with respect to Medicare Part D.

The standard Medicare Part D coverage uses a 4-phase approach based on amount of accrued prescription drug costs to deliver benefits. The deductible is $250, immediately followed by the coinsurance portion of the coverage, in which the participant is responsible for 25% of covered drug costs. Next, there is a “doughnut hole” of Medicare D coverage, in which the participant pays 100% of their drug costs until he or she reached a total out0of0pocket of $3,600. Catastrophic coverage then begins, in which the participant pays a $2 co-payment per generic or preferred drug that is a multiple source drug and a $5 do-payment per brand name drug, or 5% coinsurance (whichever is greater).

The primary obligation of plan sponsors whose plan provides outpatient prescription drug benefits is to provide all Part D entitled individuals with a notice of whether the prescription drug coverage is creditable or non-creditable, regardless of whether the plan is primary or secondary to Medicare. Creditable coverage means the prescription drug coverage is at least as good as the standard Medicare program coverage, while non-creditable coverage is coverage that is not as good as the standard Medicare prescription drug coverage. This is important because if an eligible individual is covered under a plan providing creditable coverage, a late enrollment penalty will not apply if he or she continues coverage under that plan and enrolls in a Medicare D at a later date. If the plan provides non-creditable coverage, and an eligible individual goes beyond their Medicare D initial open enrollment period, he or she will pay a late enrollment penalty for the rest of the time enrolled in Medicare D.

This notice must be provided to all Medicare D eligible persons, including active employees and their spouses, as well as those who are covered as retirees, disabled, or on COBRA by November 14th of the year proceeding the plan year. For 2006, notice must be provided by November 14, 2005. Rather than attempt to separate Medicare D eligible persons from non-eligible persons, the simplest was for the plan sponsor to provide adequate notice is to distribute the notice to all employees and retires to avoid unintended omissions.



To determine if a prescription drug plan is as good as Medicare, thus qualifying as creditable coverage, the following four standards must be met. The plan must:

 Provide coverage for brand and generic prescriptions;
 Provide reasonable access to retail providers and, optionally, for mail order coverage;
 Be designed to pay on average at least 60% of participants’ prescription drug expenses; and
 Satisfy at least one of the following:
• The prescription drug coverage has no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000;
• The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 per Medicare eligible individual in 2006; or
• For integrated coverage plans (e.g. medical and prescription drug combined), the integrated plan has no more than a $250 deductible per year, has no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000, and has no less than a $1,000,000 lifetime combined benefit maximum.

For plan sponsors providing retiree coverage, there are further decisions to be made about the direction of their current plan and obligations to be met under the new regulations. Plan sponsors now have several options on how to handle their retiree prescription drug benefits with respect to the new coverage provided under Part D, including:

Medicare D Subsidy: Plan sponsors may continue to provide their retirees with prescription drug coverage that is greater than or equal to coverage provided under Medicare Part D, and apply to receive tax-free subsidy payments from the Centers for Medicare & Medicaid Services (CMS). Since the subsidy is the most complex option, it will be discussed in greater detail later.

Direct Waiver Prescription Drug Plan (PDP): Plan sponsors may forego the subsidy, and directly fund a PDP for their retirees.

Indirect Waiver Prescription Drug Plan (PDP): Plan sponsors may forego the subsidy, and contract with a carrier to provide a PDP for their retirees.

Wrap Prescription Drug Plan (PDP): Plan sponsors may forego the subsidy, and provide a PDP designed to wrap around Part D. In this option, the plan sponsor encourages its retirees to enroll in Part D, but provides additional coverage to fill in the gaps. Coordination of benefits is required.

Medicare D Premium Subsidy: Plan sponsors may forego the subsidy, and elect to not provide prescription drug coverage, but pay all or a portion of their retirees’ premiums toward coverage under Part D.

No Coverage: Plan sponsors may forego the subsidy, and drop their prescription drug coverage, allowing retirees the enrollment right to apply for coverage under Part D.

As previously mentioned, the subsidy allowed by CMS under Medicare D is the most innovative and complex option to emerge from the legislation. Through the subsidy option, the plan sponsor continues to offer prescription drug coverage to their retirees, and applies annually to receive a tax-free subsidy from CMS up to 28% per retiree, up to a maximum of $1,330, for allowable drug spending between $250 and $5,000. Allowable drug spending does not include costs for any drug rebates or administrative fees. In addition, please note that a plan sponsor can only apply for the subsidy with respect to individuals who choose not to participate in Part D.

In order to qualify for the subsidy, the plan sponsor must offer a prescription drug plan that qualifies as “creditable coverage”, that is a plan actuarially greater than or equivalent to the standard Medicare Part D offering. CMS requires that the plan pass a two-prong actuarial equivalent test:

 The gross value of the benefit must be greater than or equal to the gross value of the standard Part D plan.
 The net value of the benefit (i.e. the plan sponsor’s contributions only) must be greater than or equal to the net value of the standard Part D plan.

To qualify for and receive the subsidy for 2006, plan sponsors must submit the following to CMS:

 Retiree Drug Subsidy (RDS) Application (prior to September 30, 2005), including an actuary’s attestation that the plan sponsor’s prescription drug coverage meets the actuarial equivalence standard.
 Certification that the plan will notify enrollees of the creditable coverage status of the plan.
 Enrollment information, including periodic updates.
 Aggregate data about incurred drug costs and reconciliation of costs at year’s end.

For subsequent years, the application must be provided at least 90 days prior to the beginning of each plan year. In addition, it should be noted that through the subsidy option, plan sponsors are required to maintain financial records for at least six years.

Please visit the CMS website at www.cms.hhs.gov for the latest in relevant and valuable information on Medicare D.

LONG TERM CARE INSURANCE-
WHAT IS IT AND WHY DO YOU NEED IT?

Dealing with long term care needs can be an emotionally and financially significant life event. Almost a quarter of U.S. households – 22 million – are already involved in caring for a relative or friend who is 50 or older, according to the non-profit National Alliance for Caregiving (“A federal case for LTC.” Employee Benefit News. 01/01/03) These individuals, if currently working, may have little time available for specialized care giving, and the additional responsibility.

According to Georgia Eldercare Advisors, CPA’s specializing in Eldercare, 09/26/03, “Increasingly, employers are offering optional long term care insurance coverage to their employees through their benefit programs – paid or a voluntary benefit. LTCI helps address a real need for employees, planning for a potential need. More importantly, it helps them protect the savings they have accumulated.

Hidden impacts of care giving responsibilities can include interruptions at work due to emergencies and phone calls, absenteeism, adjusted schedules due to the increased need for time off, decreased willingness to relocate and travel, and increased stress, which may lead to employee health-related problems and fatigue.

LONG TERM CARE INSURANCE is one of the newest employee benefits being made available to employees by businesses to attract and retain top performers, and is a valuable addition to any benefits portfolio. Benefits can be offered selectively. The employer can, for example, decide that only employees above a certain level, who have been employed by the employer for a specified number of years, will be eligible to participate. Employers may also select, or “carve-out” groups of employees to receive different premium contributions, or coverage may be offered to all employees on a voluntary basis. By extending coverage to family members, employers make it easier for workers to manage care giving responsibilities and remain productive on the job.

LONG TERM CARE INSURANCE helps protect the value of retirement savings, which could be used up very quickly paying for long term care. Offering long term care insurance can help employees feel more secure about their future and feel better that they have planned for that future.

Is Executive Carve-Out right for you and your key employees? Or is offering this benefit to all employees, on an employee-paid, voluntary basis, right for your company?
Please let us know if you are interested how these plans can benefit you.