Medicare Compliance & Reimbursement

CMS tries to smooth out wrinkles in retiree drug benefits

The final edition of Medicare's rule for the 2005 prescription drug benefit went on display at the Federal Register Jan. 21.

New wrinkles in the final version include a dialogue-heavy process through which plan sponsors and the Centers for Medicare and Medicaid Services will negotiate sponsors' final program bids; an expedited appeals process for beneficiaries who need to get drugs that aren't on their plan's formulary; and a set of "any willing pharmacy" standards for long term care pharmacies, to ensure that all nursing-home residents get needed drug coverage.

"We said it and we mean it." Despite some analysts' claims to the contrary, employers won't get a financial "windfall" by claiming new Medicare subsidies for providing retiree drug benefits while shifting costs onto retirees or drastically slashing the benefits, CMS Administrator Mark McClellan said at a Jan. 21 press briefing.

The final rule offers a new two-pronged test - somewhat different from options outlined in the proposed rule - for employers to demonstrate "actuarial equivalence" to the Medicare benefit and thus qualify for a subsidy. First, CMS will scrutinize the proposed benefit overall, to assess whether it "meets Medicare standards" on provisions such as copays and catastrophic coverage. "Most employers will meet that test," said McClellan.

Prong two: "How much is the employer actually contributing to that coverage?" Employers must contribute at least as much to retirees' coverage as Medicare will to beneficiaries' Part D coverage, and "not all employer plans are going to meet that prong," said McClellan.

Nevertheless, CMS now projects that more than a million additional people will get subsidy-eligible employer- or union-sponsored coverage, compared to its previous estimates, based on the agency's "assumptions regarding employers' and unions' response" to the final rule's two-prong test. About 9.8 million beneficiaries will get subsidy-eligible retiree coverage in 2006, according to a CMS fact sheet.

McClellan acknowledged that some employers who offer rich retiree benefits today may trim them and still qualify for subsidies - the scenario that some have dubbed a "windfall." But he noted that, as far as cutting retiree benefits goes, "employers are already doing that today." Desire to qualify for the subsidy may, in fact, "put a floor and a stop" to the severity of the trimming, McClellan said.