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Medicare Compliance & Reimbursement

Medicare Reform:

Employers Won't Get Medicare Drug Subsidy If They Shift Too Many Costs To Retirees

Published on Fri Apr 09, 2004

Earlier this year, the Wall Street Journal reported expert opinion suggesting that employers could still get their full Medicare drug-coverage subsidies if they offered plans in which retirees -- not the company -- picked up virtually all the costs. Now both the Bush administration and a top congressional architect of the law have clarified their agreement that that's not the case. The level of retiree cost sharing is germane to determining whether an employer-sponsored plan is eligible for the new subsidy, the officials agree.
 
Most recently, new Centers for Medicare & Medicaid Services Administrator Mark McClellan noted in a response to questions from the Senate Finance Committee that "it is incorrect for anyone to argue that the law calls for employers to be subsidized for costs they are not incurring" -- i.e., costs picked up by retirees themselves.

While "there is some debate over the precise meaning" of actuarial equivalence as used in the law, the Medicare Modernization Act clearly "calls for employers to be eligible for the subsidy provided they require [sic] a benefit 'at least equal to the actuarial value of standard prescription drug coverage'" under Medicare Part D.

In a February letter to Health and Human Services Secretary Tommy Thompson, House Ways and Means Committee Chair Bill Thomas (R-CA) wrote that the notion that employers will be subsidized regardless "of how much cost sharing they require their retirees to pick up is not supported by the legislative language in the statute or congressional intent."

In March, Thompson replied that he agreed with Thomas' conclusion "that it is incorrect to assume that employers and union plans are entitled to the subsidy payment, regardless of how much cost sharing retirees are required to pay."

It is true, however, that drug coverage that is actuarially equivalent to the new Part D standard would in fact require more cost sharing than some retirees bear in their employer-sponsored retirement plans as currently structured.

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