EmployerSponsored Retiree Health Coverage and the Medicare Modernization Act

1
Employer-Sponsored Retiree Health Coverage and
the Medicare Modernization Act

• Paul W. Dennett
• American Benefits Council
• for the
• Employers Coalition on Medicare
• February 2004

2
Retiree Health Benefits Key Facts

• Employer plans provide supplemental coverage to
  about 30 of Medicare seniors
• Predominantly offered by large firms and public
  employers
• Typically covers services not available under
  Medicare and cost-sharing
• Nearly all (93) cover prescription drugs

3
Retiree Health Benefits Key Trends

• Costs up by 13.7 in 2003
• Retiree share of premiums and cost-sharing
  continue to increase
• Many employers rapidly reaching caps on making
  further contributions
• Coverage for current retirees much more secure
  than future retirees or new hires

4
Medicare Standard Rx Benefit
Enrollee Out-of-Pocket Expenditures
Total Drug Expenditures
5,100
3,600
2,250
750
250
250
0
0
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Employer Options for Retiree Health Coverage

• Option 1 Employer Subsidy for Rx Coverage
• Retiree is enrolled in employer plan and not in a
  prescription drug plan (PDP) or Medicare
  Advantage (MA) plan
• Employers share of Rx coverage must be at least
  actuarially equivalent to Medicares Rx benefit
• Medicare pays 28 of Rx claims between 250 and
  5000. Subsidy is tax-free.

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Medicare Employer Subsidy for Qualified Retiree
Rx Coverage
Total Drug Expenditures
5,000
Employers share of retiree Rx coverage must be
at least actuarially equivalent to Medicares Rx
coverage
250
0
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Employer Options for Retiree Health Coverage

• Option 2 Employer Payment of Medicare Premiums
• Retiree is enrolled in a PDP or MA plan
• Employer pays all or a portion of the retirees
  premium
• Medicare pays the PDP or MA plan for Medicare
  coverage

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Employer Options for Retiree Health Coverage

• Option 3 Employer Supplements Medicare
  Coverage
• Retiree is enrolled in a PDP or MA plan
• Employer provides supplemental coverage in
  addition to Medicare benefits
• Medicare pays PDP or MA plan for Medicare coverage

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Employer Options for Retiree Health Coverage

• Option 4 PDP or MA Plan Waiver to Better Serve
  Employer Groups
• Retiree is enrolled in a PDP or MA plan
• Plan requests HHS to waive requirements that
  could hinder enrollment of retirees with employer
  coverage
• Medicare pays PDP or MA plan for Medicare coverage

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Employer Options for Retiree Health Coverage

• Option 5 Employer Waiver to Sponsor Its Own PDP
  or MA Plan
• Retiree is enrolled in a PDP or MA plan offered
  only to members of an employer group
• Employer seeks waiver from HHS to limit
  enrollment or make other changes
• Medicare pays employer-sponsored PDP or MA for
  Medicare coverage

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Employer Options for Retiree Health Coverage

• Option 6 Employer-sponsored Health Savings
  Accounts (HSA)
• Employer and employee contribute to HSA during
  employees working career
• Catch up contributions allowed at age 55
• At age 65, distributions may be use for certain
  health premiums, e.g., retiree health coverage or
  PDP or MA plan premiums
• Funds may also be used for other qualified
  medical expenses and long-term care coverage

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Notes

• Information on retiree health key facts and
  key trends from Retiree Health Benefits Now
  and in the Future by the Henry J. Kaiser Family
  Foundation and Hewitt Associates, January 2004.
• For additional information on employer-related
  provisions in the Medicare Modernization Act
  contact Paul Dennett at the American Benefits
  Council at pdennett_at_abcstaff.org or 202-289-6700.