With less than three months until Medicare D takes effect, there is plenty for an employer to do to get ready. If you have done nothing yet, follow these steps. If you are well on your way to compliance, use these to check your progress.
Step 1: Learn it
Medicare D is the new prescription drug benefit available to Medicare-eligible individuals, effective Jan. 1, 2006. With few exceptions, your retirees and active employees who are Medicare-eligible may enroll in Medicare D. Individuals who enroll in Medicare D and pay a monthly premium receive prescription drug coverage through a government-approved Part D Plan.
Although Part D Plans must meet minimum requirements, they do not all offer the same coverage. Your current and former employees probably have been inundated already with sales information from Part D Plans.
Medicare D will provide catastrophic coverage, plus a modest amount of earlier coverage. Think of it in four levels:
The first level-a $250 deductible-is paid entirely by the individual.
At the second level-the next $2,000 in prescription drug expenses-Medicare pays 75 percent and the individual pays 25 percent.
The third level opens after the first $2,250 in prescription drug expenses, but doesn't close until the individual-without help from the employer-has paid $3,600 in "true out-of-pocket" expenses, called TROOP.
The catastrophic coverage kicks in at the fourth level-after the individual has satisfied TROOP-and Medicare pays 95 percent of the remaining annual expenses.
Note one TROOP effect: if an employer's plan helps the individual pay expenses at the first level ($250), the second level ($500) or the third level ($2,850), that employer assistance postpones the onset of catastrophic coverage. The individual must pay $3,600 of TROOP personally, not with employer reimbursements. In other words, employer plan coverage may save money for Medicare, not for the individual.
As with Parts A and B Medicare, Medicare D is the primary payer for retirees, but the secondary payer (after the employer plan) for active employees. If an employer plan covers Medicare-eligible retirees, Medicare may pay the employer a subsidy to encourage continuation of that coverage. To be eligible, the plan must provide employer-paid retiree coverage that is as valuable as Medicare D. For 2006, Medicare will pay a subsidy equal to 28 percent of the plan's prescription drug benefits between $250 and $5,000 for each Medicare-eligible retiree who is not enrolled in Medicare D.
To learn more details, contact your health care or legal advisers and visit the government's Web site at www.cms.-hhs.gov/medicarereform.
Step 2: Make decisions
Decide whether to eliminate, change or keep your prescription drug plan, as well as whether to seek the subsidy. Keeping your current plan design may be the simplest approach, but it may not be the most cost-effective, even if you receive the subsidy. You may benefit economically by changing the plan to coordinate more effectively with Medicare D's coverage (usually done by optimizing the TROOP coordination). You may choose to eliminate plan coverage altogether for retirees (or perhaps for just the Medicare-eligible retirees, a somewhat complicated legal question at the moment), perhaps reimbursing individuals for their Medicare D premiums. If you apply for the subsidy, you must submit your application by Oct. 31 for plan years ending in 2006.
Step 3: Communicate
Communicate the basics of Medicare D and your own plan coverage decisions to your Medicare-eligible individuals. Early communication is particularly important if you wish to apply for the subsidy because you cannot receive a subsidy for anyone who enrolls in Medicare D.
Whether or not you apply for the subsidy, you must notify those active and former employees in writing, and their covered Medicare-eligible dependents, about whether your plan's prescription drug benefits qualify as "creditable coverage."
To be creditable coverage, your plan's benefits, whether funded by employer or individual premium payments, must be as valuable as Medicare D. For these purposes (but not for seeking the subsidy), you may assume that your plan provides creditable coverage if it:
provides coverage for brand and generic prescriptions,
provides reasonable access to retail providers,
is designed to pay, on average, at least 60 percent of plan participants' prescription drug expenses, and
has a maximum annual benefit of at least $25,000 or an expected payable amount of at least $2,000 per individual.
If the drug coverage is integrated with other health coverage, the fourth requirement is satisfied if the integrated health plan has no more than a $250 annual deductible, has a maximum annual benefit of at least $25,000, and has a lifetime maximum benefit of at least $1 million. The first notices must be provided by Nov. 15.
Step 4: Buckle up
Follow Steps 1 through 3. Then, on Jan. 1, steer carefully through your Medicareeligible individuals, their Part D Plans and the Centers for Medicare and Medicaid Services (CMS), the agency responsible for Medicare. This time next year, you may celebrate a year of Medicare D experience under your belt-your seat belt.
Purcell is a partner with Baker & Daniels LLP specializing in employee benefits law. Views expressed here are the writer's.