Employers To Adjust Retiree Drug Benefits In Response To Medicare Part D
Companies sponsoring retiree medical programs for former employees age 65 and older are reconsidering their prescription drug benefits for 2007 in light of the new benefits available through Medicare Part D, according to a survey developed by Towers Perrin and conducted by the International Society of Certified Employee Benefits Specialists (ISCEBS).
Of the 169 companies and nonprofit organizations surveyed in January, nearly two-thirds (65%) said they had chosen to collect the federal subsidy and continue to offer their prescription drug plans in 2006, the first year in which Medicare Part D has been available. The remainder of respondents reported taking a variety of approaches in 2006: 10% are continuing the plan without the subsidy; 10% are integrating their plans with Part D plans; 5% have arranged to offer a specific Part D plan; 3% are eliminating drug coverage and are instead offering Medicare Parts A and B coverage; 1% are eliminating their plan and reimbursing premium pay-ments; and 1% have eliminated all retiree medical benefits.
Results also showed the following: 41% of the employers surveyed informed their Medicare-eligible retirees prior to the launch of Part D that they could not continue to qualify for the employer-sponsored medical plan if they enrolled in a Medicare drug plan; 25% told retirees they could continue receiving medical benefits, but not prescription drug benefits, if they participated in a Part D plan; and 28% told retirees they could continue in the employer-provided plan even if they enrolled in a Medicare prescription drug plan.
Of the employers surveyed who opted to receive the federal subsidy in 2006, 82% said they are using the subsidy to reduce their own costs, while 14% said they are using the subsidy to reduce the cost for retirees.
When asked about their strategy for 2007, 63% of respondents said they had yet to make up their minds about how to respond to Medicare Part D beyond 2006, while 37% of respondents indicated they had reached a decision.
Companies that have a Part D strategy for 2007 indicated the following: 42% intend to maintain current benefits and collect the federal subsidy; 20% will offer a supplemental plan that will integrate with Part D plans; 13% will offer a specific Part D plan; 7% will eliminate their drug coverage and instead offer coverage through Medicare Parts A and B; 5% will continue the plan without a subsidy; 5% will eliminate all retiree medical benefits; and 3% will eliminate the employer plan and reimburse premium payments.
When asked about the potential impact of the Financial Accounting Standards Board’s (FASB) proposed accounting changes for pension and other post-retirement benefits, most respondents said they anticipate the changes will have at least some effect on earnings volatility.
