About 3.8 Million Medicare Beneficiaries Expected To Lose Employer-Sponsored Prescription Drug Coverage in 2006
About 3.8 million Medicare beneficiaries could lose some or all of their employer-sponsored retiree prescription drug coverage when the Medicare drug benefit begins in 2006, according to new documents released by HHS, the New York Times reports. According to HHS officials, in the absence of Medicare drug benefits, about 11.5 million beneficiaries would receive employee-sponsored prescription drug benefits. Under the new law, about 7.6 million of those beneficiaries will continue to receive employer-sponsored drug coverage, and the remaining 3.8 million are expected to receive their primary drug coverage from Medicare, according to the HHS documents. By 2010, the number of beneficiaries who receive primary drug coverage through Medicare is expected to grow to 4.1 million, the documents say.
Government officials have said they believe that federal subsidies called for under the new Medicare law will encourage employers to continue providing drug coverage to retired workers, according to the Times. The government between 2006 and 2013 will spend about $71 billion on such subsidies. The law calls for the government to give companies a subsidy equal to 28% of drug costs from $250 to $5,000 per year for any retiree who has employer-sponsored drug coverage at least equal in value to the standard Medicare drug benefit. Employers will not have to pay taxes on the subsidies and still will be able to take tax deductions for the cost of providing retiree health benefits. Employers who limit drug coverage still might offer benefits to supplement the Medicare drug coverage, but they would not receive government subsidies for doing so. Medicare officials later this month plan to propose specific standards for determining how to measure the value of drug benefits. Employers say their decision on whether to continue to provide retiree drug coverage "will depend to a large degree on the federal rules," particularly the standards for determining benefit value, the Times reports.
John Schubert of PricewaterhouseCoopers and Anthony Knettel, a senior health policy adviser at the Erisa Industry Committee, both said that the government could have difficultly writing a set of rules that is applicable to all retiree health plans, since they vary greatly. Gale Arden, director of the private health insurance group at CMS, added, "This is a new line of business for us. We have never been engaged in paying subsidies to employers or unions before."
Rep. Bill Thomas (R-Calif.) said, "Rather than worsening the situation, [the law] works to stop the trend of employers' dropping retiree coverage." E. Neil Trautwein, assistant vice president of the National Association of Manufacturers, said Tuesday that the new Medicare law "has the potential to slow or even reverse the decline in the level of retiree health coverage provided by employers." Frank McArdle, a health policy expert at Hewitt Associates, added, "The subsidy will be very popular with large employers, whose No. 1 concern is to minimize disruption to their retirees. In many cases, employers who take the subsidy will be able to continue doing just what they did before."
Rep. Pete Stark (D-Calif.) said that the new Medicare law will "force millions of retirees out of comprehensive retiree drug coverage and into a flawed, inadequate program." The standard Medicare drug benefit will cover about $1,200 in medication costs per year. However, with beneficiaries responsible for all drug costs out of pocket after a certain point until catastrophic coverage begins, the benefit will be "much different from the type of drug" coverage typically offered by employers, the Times reports (Pear, New York Times, 7/14).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.