This fall, the media was abuzz about the biggest addition to government-sponsored retirement benefits in recent memory: the rollout of the new Medicare prescription drug (Part D) plan. The main media focus has been on Medicare beneficiaries, and their questions and concerns about the new coverage as they approach the January 1, 2006, go-live date.
However, not much has been said about the possibilities the new Part D plan holds for America’s small and mid-size employers. If these employers offer their retirees prescription drug coverage that is at least as generous as the government’s standard Medicare Part D coverage, these employers may be eligible for an employer subsidy, payable for each Medicare-eligible person enrolled in their plans. Sounds simple, right?
Unlike very large companies, which have many thousands of retirees and larger staffs to manage benefits programs, small and mid-size companies face challenges as they strive to incorporate the advantages of the Part D coverage into the benefits package they offer while minimizing the administrative hurdles.
As the Medicare prescription drug program becomes effective this January, employers should not wait for too long to investigate Part D coverage. For most, it comes down to two options: apply directly for the Medicare subsidy or work with a Medicare-approved health insurer that can offer a Prescription Drug Plan (PDP) for retirees.
Direct subsidy
Those thinking about applying directly for the subsidy should consider such factors as the utilization patterns of retirees, the demographics and geographic dispersion of the retiree base, and whether the number of retirees makes it worth the administrative demands that may accompany the direct-subsidy route.
The initial application process is lengthy, and takes more than 40 hours by Medicare’s own estimates. After that, you must provide monthly paperwork in order to confirm that your company is indeed providing such benefits. In addition, you may need to maintain six to 10 years of retiree benefits data in case of a government audit.
So, it’s crucial to have a human resources infrastructure — particularly experienced benefits managers — to help manage the considerable paperwork involved. You may also need to hire an actuarial company to help ensure that your plan delivers the right benefit level to meet the eligibility requirements for the Medicare Part D program.
PDP solutions
With such significant requirements, it’s not surprising that many small and mid-size companies are turning to PDPs for a one-stop-shopping solution to this dilemma.
Here’s how it works. The employer receives the value of the government subsidy through a reduced premium from the PDP. Because the PDP has economies of scale, it can provide employers and retirees with myriad services that go beyond what an individual employer could reasonably provide. Among the highlights:
- The PDP handles all of the government requirements, including applications and updates. If there is a government audit, the PDP handles this as well.
- Because they provide health and other benefits to retirees, the PDPs have the educational tools to help retirees better understand the new drug program. The PDP handles plan enrollment and often provides excellent communications programs, as well as high-tech Web tools to help retirees investigate, price and compare drugs.
- The PDP may also offer a ready-made suite of flexible plan designs for employers, so you can find a plan that matches your benefits strategy.
- Many PDPs also offer Medicare Advantage, allowing you to integrate the new drug coverage into your health benefits program for your retirees who are Medicare eligible,[BS1] which streamlines your procurement and benefits administration process. What’s more, retirees can access the entire range of medical-related benefits using one ID card.
Weighing options
If you are on the fence — wondering whether to establish a relationship with a PDP or go it alone — your broker or consultant may help you assess your options. With careful consideration and execution, you should be able to enjoy the government subsidy while ensuring that your retirees receive the greatest possible value from the benefits package you provide.
Thomas J. Scurfield is vice president of sales and service for Aetna’s north central east region and is based in Cleveland. He has more than 25 years of experience working in employee benefits and holds both the Chartered Life Underwriter and Certified Employee Benefit Specialist designations. Reach him at (330) 659-8020 or [email protected].
