Milliman client study on comparing plan sponsor options under Medicare Plan D

Milliman was engaged by a private employer to assess its options and help it decide on an optimal strategy to provide retiree prescription drug coverage in conjunction with the introduction of Medicare Part D in 2006.

Evaluating the options

The Medicare Modernization Act of 2003 created a plan sponsor retiree drug subsidy (RDS) under Medicare Part D to encourage plan sponsors to continue offering retiree prescription drug coverage.  This approach was deemed the path of least resistance in 2006 by the Centers for Medicare and Medicaid Services (CMS).  However, several other options exist for retiree plan sponsors under Medicare Part D that can be more cost-effective, depending on the plan sponsor’s situation (e.g., number of retirees, tax status, collective bargaining agreements). These options include:

• wrapping coverage around an individual Part D plan;
• purchasing group coverage directly through a Medicare Advantage (MA-PD) or Prescription Drug Plan (PDP) under an employer group waiver plan (EGWP); or,
• dropping prescription drug coverage and paying 0-100% of the retiree’s individual coverage premium.

Providing in-depth analysis

Milliman worked collaboratively with the private employer to:

• review its current retiree prescription drug coverage offering;
• analyze all Part D options from a financial and administrative standpoint;
• assess Part D options in light of present and future company goals; and,
• plan implementation and communication strategies.

Conclusions and recommendations

Table 1 contains the numerical results of the option comparison we provided to the private employer.  In its situation, the RDS was the optimal choice for these reasons:

1. The employer’s taxable status made the RDS value increase because it’s tax-free.
2. The RDS option allowed no change to the benefit and the employer desired to minimize disruption to its retiree population.
3. The paternalistic nature of the employer dictated that it did not want to drop coverage and leave its retirees to find individual coverage on their own.

The private employer was satisfied that it had considered its Part D options and made an educated decision on the optimal approach.  To this employer, it was important to perform this quantitative analysis, weigh the potential savings for each option, and overlay this comparison with the qualitative factors before making a decision.

We recommend this evaluation process—examining the options and their costs in the context of the plan sponsor’s situation—to all plan sponsors that have a covered retiree population of 50 or more members.

Have you evaluated your plan options? Contact us today.