Download Options for Employers to Provide Retiree

Options for Employers to
Provide Retiree Coverage PostImplementation of Medicare Part
D
Union Forum Call
March 23, 2006
Kathryn Bakich, The Segal Company
Copyright © 2006 by The Segal Group, Inc., the parent of The Segal Company. All rights reserved.
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
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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:
o Stand-alone Prescription Drug Plans: about 4.9 million (1.3 million
since January 13)
o Medicare/Medicaid: 6.2 million (including 560,000 in Medicare
Advantage plans)
o Medicare Advantage: 4.7 million plus 560,000 in
Medicare/Medicaid
o Retiree coverage: About 6.4 million retirees are enrolled in the
Medicare retiree subsidy
o 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.
o TRICARE/ FEHBP retirees: 3.1 million
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Plan Sponsor Options
Retiree Drug Subsidy
Contract with a PDP
Become a PDP
Wrap Arounds
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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 outof-pocket maximum)
Contract with a private PDP or Medicare Advantage plan for an
employer-specific plan
Become a PDP
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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
5
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
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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
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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?
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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
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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
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Prescription Drug Plan Regions
DRAFT
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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
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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
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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
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Medicare Rx Standard Benefit Design – 2006
5% Beneficiary
95% Medicare
$5,100
“Coverage Gap”
100% Beneficiary
$2,250
25% Beneficiary
75% Medicare
$250
$250 Deductible
100% Beneficiary
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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
16
Sample High and Low Part D Plans
Low Benefit Plan
High Benefit Plan
$250 Deductible
$0 Deductible
Tiered Copay: $5 generic; $20
preferred brand; $40 non-preferred
brand
Tiered Copay: $5 generic; $20
preferred brand; $40 non-preferred
brand
Extra Coverage in the Coverage
Gap? No
Extra Coverage in the Coverage
Gap? Yes, for generics
Number of Top 100 Drugs on
Formulary: 85
Number of Top 100 Drugs on
Formulary: 99
Mail Order offered
Mail Order offered
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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
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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
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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
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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
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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
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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
23
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
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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
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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
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Becoming a Prescription Drug Plan
Application deadline was March 20, 2006
Option is available for 2008 if the 2007 deadline was missed
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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
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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/
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Questions
Kathy: 202-833-6494
[email protected]
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