RDS/Creditable coverage certifications — Other plan sponsor options

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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.

  1. 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).
  2. 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.
  3. Provide prescription drug coverage by contracting with and enrolling retirees in CMS-approved prescription drug (PDP) or Medicare Advantage (MA-PD) group plans.
  4. Convert prescription drug coverage to individual Medicare Part D and pay the premium.
  5. 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.

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