Retiree drug subsidy is not the only option
If you are a plan sponsor that offers a prescription drug plan to people who are eligible for Medicare, you have multiple options for providing coverage. The most cost-effective choice for you depends on your situation.
- Keep existing prescription drug coverage and apply through the Centers for Medicare and Medicaid Services (CMS) for the retiree drug subsidy, equal to 28% of allowable drug costs between specified thresholds ($310 - $6,300 for 2010).
- Provide prescription drug coverage that is secondary to Medicare, also known as "wrap-around" coverage, making the individual Medicare Part D coverage primary. This option does not require filing with CMS, but the coordination of claim processing can be complex and may not be completed at the point of sale.
- Provide prescription drug coverage by contracting with and enrolling retirees in CMS-approved prescription drug (PDP) or Medicare Advantage (MA-PD) group plans.
- Convert prescription drug coverage to individual Medicare Part D and pay the premium.
- Do not offer drug coverage to Medicare-eligible retirees but continue offering a group medical benefit.
Which makes the most sense?
Each option has significant advantages and disadvantages. For example, the retiree drug subsidy is tax-free to the plan employer, so it is most beneficial to employers in the highest tax brackets. Often, enrolling in a PDP (or MA-PD) may have cost advantages for not-for-profit, government, and other employers that don't realize the tax benefits.
Don't leave money on the table!
Applying for the RDS subsidy may be the quickest solution; it is not always the most cost-effective. Milliman can develop an actuarial analysis for each alternative so you can weigh the various options and determine a cost-effective strategy.
Contact us to learn more.