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Options for Employers to Provide Retiree Coverage Post-Implementation of Medicare Part D

Options for Employers to Provide Retiree Coverage Post-Implementation of Medicare Part D. Union Forum Call March 23, 2006 Kathryn Bakich, The Segal Company. Understanding Part D .

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Options for Employers to Provide Retiree Coverage Post-Implementation of Medicare Part D

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  1. Options for Employers to Provide Retiree Coverage Post-Implementation of Medicare Part D Union Forum Call March 23, 2006 Kathryn Bakich, The Segal Company

  2. Understanding Part D • Plan Sponsors have spent significant time and effort to understand the Retiree Drug Subsidy program, but may be unfamiliar with the details of the Medicare Part D program • Consequently it may be difficult to know the ramifications for retirees if a plan sponsor proposing switching from traditional retiree drug coverage to coverage under a Part D plan • Understanding the plan sponsor options for 2007 and beyond means understanding how the Part D market and benefit plan designs have evolved and are being implemented

  3. Medicare Enrollment Numbers • According to CMS, the overall drug benefit enrollment figures as of February 13, 2006 total almost 27 million, broken down as follows: • Stand-alone Prescription Drug Plans: about 4.9 million (1.3 million since January 13) • Medicare/Medicaid: 6.2 million (including 560,000 in Medicare Advantage plans) • Medicare Advantage: 4.7 million plus 560,000 in Medicare/Medicaid • Retiree coverage: About 6.4 million retirees are enrolled in the Medicare retiree subsidy • Another 1 million retirees are in employer coverage that incorporates or supplements Medicare’s coverage. Another estimated 500,000 retirees are continuing in coverage that is as good as Medicare’s. • TRICARE/ FEHBP retirees: 3.1 million

  4. Plan Sponsor Options • Retiree Drug Subsidy • Contract with a PDP • Become a PDP • Wrap Arounds

  5. Plan Sponsor Benefit Designs Plan Sponsors are permitted to: • Provide a prescription drug benefit that is actuarially equivalent to the Medicare standard benefit, without regard to the benefit design and network access requirements of a PDP or Medicare Advantage plan and take the Retiree Drug Subsidy • Pay all or part of the Medicare PDP or Medicare Advantage Part D premium for their retirees • Provide a supplemental insured or self-insured benefit to Part D that pays all or part of retiree cost sharing, such as coinsurance and deductible (Plan payments would not count toward the retiree’s out-of-pocket maximum) • Contract with a private PDP or Medicare Advantage plan for an employer-specific plan • Become a PDP

  6. What are Most Plan Sponsors Doing in 2006? • Most plan sponsors signed up to receive the 28% employer subsidy from Medicare in 2006 because it is the easiest decision and does not require plan redesign • Many plan sponsors will contract with stand-alone Prescription Drug Plans (PDP) • Some plan sponsors will contract with a Medicare Advantage HMO • A few plan sponsors will offer a supplemental benefit to Part D (a “wrap”) plan • Fewer than a dozen governmental employers and very large employers and unions direct-contracted with CMS to offer a Part D program • Some plan sponsors terminated retiree prescription drug coverage

  7. Cost Implications of the Medicare Options for 2006 • Retiree Drug Subsidy estimated by CMS to be $668 per retiree per year – actual numbers unknown • For 2006, a group health plan that contracts with a Part D plan for the standard benefit package would have costs offset approximately $720 from Medicare • Offering a supplemental benefit to Medicare means that the plan pays after Medicare pays. Cost savings will depend on the design of the supplemental plan

  8. Targeted Employers • Medicare Prescription Drug Plans are likely to target certain employers and attempt to sell them a Part D product • Non-profits, including state and local governments, because they do not receive the tax benefits from the Retiree Drug Subsidy and because of GASB • Plans that do not meet the “actuarial equivalence” standard and therefore are not eligible for the Retiree Drug Subsidy • Due to caps on retiree contributions, the number of employers who do not meet the actuarial equivalence standard may increase over time

  9. A Few Critical Factors in Decision Making • Is the Retiree Drug Subsidy producing expected returns? • Are there collective bargaining restrictions on benefit modification? • Is benefit redesign acceptable to the trustees and the retirees? Can it be effectively communicated? • Are medical and drug benefit administration currently linked in a way that adding a separate drug plan is impractical? • Are there local Medicare HMOs that might provide alternatives? • What kind of formulary is currently used for the retiree drug benefit and how much disruption can the plan tolerate? • How stable is the Part D market? • Are there enough retirees (e.g. over 5,000) to make it worthwhile to consider becoming a Medicare prescription drug plan?

  10. Retiree Drug Subsidy Implementation/Due Diligence • Retiree Drug Subsidy • Payments can be requested beginning July 1, 2006 • Interim one-time payment can be requested in April 2006 • Reconciliation required within 15 months after the end of the Plan Year • Ongoing issues regarding how to treat retirees who signed up for Part D (terminate coverage or pay secondary to Part D) • Next steps • Plan sponsors must complete the application, payment process • Contracting with PBMs regarding RDS services, charges • Reconciliation Audits of payment requests • Send Notices of Creditable Coverage and file Disclosure Notice with CMS by March 31, 2006 • Assure that plan sponsor monitors deadlines for submission of RDS application for the plan year ending in 2007

  11. Understanding the Part D PDP • We’ll review several issues important to understand when considering implementing a Part D Prescription Drug Plan • Benefit design • Formulary • Network • Cost • For PDPs that contract with a group health plan, all of the above are negotiable

  12. Prescription Drug Plan Regions DRAFT

  13. Stand-Alone Prescription Drug Plans • There are 2,190 stand-alone PDP options in the US • There are 10 companies offering stand-alone PDPs in every state: • Aetna Medicare • CIGNA Health Care • Coventry AdvantraRx • Humana • Medco • MEMBERHEALTH • PacifiCare • SilverScript • United Healthcare • WellCare

  14. What kind of Benefits/Network will Plans Offer? • PDPs may offer the standard benefit design, an actuarially equivalent benefit, or a supplemental benefit (additional premium could be charged) • Individuals must be able to use the PDP’s negotiated discounts even if they are not eligible for a benefit (e.g., before the deductible is met) • Low Income Subsidies are available for individuals with incomes under 150% FPL. Subsidies increase benefits and offset premiums

  15. Out-of-Pocket Maximum • “True Out-of-Pocket” (TROOP) rule: Only individuals or another person (e.g., family member) can pay out-of-pocket amounts and have that payment count toward the out-of-pocket maximum • Payments from a group health plan, insurer or other third party arrangement toward beneficiary cost sharing do not count toward the individual’s out-of-pocket maximum • Costs are not considered toward out-of-pocket maximum if they are for non-formulary prescription drugs or drugs purchased from outside the US

  16. 5% Beneficiary 95% Medicare $5,100 100% Beneficiary “Coverage Gap” $2,250 25% Beneficiary 75% Medicare 100% Beneficiary $250 $250 Deductible Medicare Rx Standard Benefit Design – 2006

  17. Coverage Gap Issues • The coverage gap is the hole in coverage between $2,250 and when the individual reaches their out of pocket maximum of $3,600 • Some Medicare PDPs offer coverage in the gap, and others do not • A PDP might fill the gap with generics or brand, or both, or could leave the gap empty

  18. Low Benefit Plan $250 Deductible Tiered Copay: $5 generic; $20 preferred brand; $40 non-preferred brand Extra Coverage in the Coverage Gap? No Number of Top 100 Drugs on Formulary: 85 Mail Order offered High Benefit Plan $0 Deductible Tiered Copay: $5 generic; $20 preferred brand; $40 non-preferred brand Extra Coverage in the Coverage Gap? Yes, for generics Number of Top 100 Drugs on Formulary: 99 Mail Order offered Sample High and Low Part D Plans

  19. Formulary Issues • Medicare Prescription Drug Plans must file a formulary with CMS that lists the drugs covered under the plan • Drugs not listed are not paid for by the PDP and do not count toward an individual’s TROOP

  20. Formulary Issues • Retirees who move from an employer-sponsored plan to a Medicare PDP may see a change in the covered drugs • A new formulary may replace an old one (or even no formulary) • A displacement analysis determining how many retirees will be affected by the formulary change is important • Under Medicare Part D, if the retiree’s drug is not on the new formulary they can switch drugs, ask for a formulary exception, or pay for the old drug out of their pocket • Medicare required a 90-day fill for prior drugs in 2006, but that rule is not likely to continue in 2007

  21. Network Issues • Medicare Prescription Drug Plans must satisfy certain network rules, but the network might be different than that currently in place for a group health plan • PDPs can offer a nationwide pharmacy network to employer group plans. However, to do so the PDP must offer an individual product in the area where the employer has most of its employees • Consequently, displacement analysis regarding whether the PDP network is appropriate for the group of retirees is important

  22. Eligibility and Enrollment–Part D • Entitled to or enrolled in Part A or enrolled in Part B and live in a Part D region • Voluntary Enrollment • Employers can Group-Enroll their retirees into a PDP • Annual Open Enrollment, beginning November 15, 2005 • Right to change elections annually • Special enrollment periods (e.g., an individual may specially enroll if they lose actuarially equivalent employer-sponsored coverage) • Penalties for late enrollment are 1% per month (minimum) • Penalties are not imposed if individual had Creditable Coverage

  23. Group Enrollment in a Prescription Drug Plan • Employer Group Health Plans (EGHP) have several options for enrolling retirees in a Prescription Drug Plan on a Group Enrollment basis • Annual Open Enrollment • Special Election Periods • For individuals enrolling in or disenrolling from an employer/union-sponsored Part D plan • No limit • May be used when an employer would otherwise allow coverage changes • Group enrollment • No individual enrollment form needed for each beneficiary • Provide notice of group enrollment not less than 30 calendar days before effective date • Permit retirees to decline; include information about consequences

  24. Let’s Talk Timetables • Trustees need to know the time frames for decision making and program implementation • Time tables will differ for each Medicare option

  25. What will CMS do Next?? • March - April 2006 – Approximate time for release of Part D deductible, coinsurance, OOP max for 2007 • April 17, 2006 – Formularies must be submitted to CMS • May 1, 2006 – CMS issues renewal/non-renewal notices to PDPs • June 5, 2006 – PDP bids due to CMS • September 15, 2006 – Approximate date for final PDP approval for 2007 benefit year • October 1, 2006 – Plans may begin to market to individuals • October 15-30, 2006 – Medicare & You handbooks mailed • November 15-December 31, 2006 – Annual Election Period • January 1, 2007 – Part B Premium indexed based on income and phased in over 3-year period

  26. Retiree Drug Subsidy Timetable • Subsidy applications must be submitted 90 days before the beginning of the Plan Year for which the subsidy is requested • Calendar year plans – September 30, 2006 • Non-calendar year plans need to monitor timeline for their plan years; e.g. July 1 plans have a March 31 filing date • Notices of Creditable Coverage are required every year • Disclosure of Notice of Creditable Coverage required on March 31, 2006, and 60 days after the beginning of the plan year for subsequent years

  27. PDP Contracting Timetable • We know what companies are offering PDPs in regions and nationally • We will know the benefits and formularies this spring • Plan sponsors won’t know how much the Medicare plans are getting paid until August or September each year • Unknown payment terms leaves a short window for negotiating the benefits and premiums with a Part D plan • Unknown payment means implementation must occur in October/November/December • Similar time frames if contracting with a Medicare HMO or PPO

  28. Becoming a Prescription Drug Plan • Application deadline was March 20, 2006 • Option is available for 2008 if the 2007 deadline was missed

  29. Helpful Acronyms • CMS = Centers for Medicare & Medicaid Services • MA-PD = Medicare Advantage Plan with Prescription Drugs • MMA = Medicare Modernization Act • PDP = Prescription Drug Plan • RDS = Retiree Drug Subsidy • TROOP = True Out-of-Pocket

  30. More Information • CMS website has further information on the Part D program and the employer subsidy • For more information about employer-sponsored plans and Part D go to http://www.cms.hhs.gov/EmplUnionPlanSponsorInfo/ • Retiree Drug Subsidy information is available at http://rds.cms.hhs.gov/

  31. Questions Kathy: 202-833-6494 kbakich@segalco.com

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