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Options for Employers to Provide Retiree Coverage Post-Implementation of Medicare Part D. Union Forum Call March 23, 2006 Kathryn Bakich, The Segal Company. Understanding Part D. - PowerPoint PPT Presentation
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Copyright © 2006 by The Segal Group, Inc., the parent of The Segal Company. All rights reserved.
Options for Employers to Provide Retiree Coverage Post-Implementation of Medicare Part D
Union Forum Call
March 23, 2006
Kathryn Bakich, The Segal Company
2
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
3
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
5
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 out-of-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
7
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
8
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
9
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
12
Prescription Drug Plan Regions
DRAFT
13
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
15
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
16
Medicare Rx Standard Benefit Design – 2006
5% Beneficiary95% Medicare
“Coverage Gap”
$5,100
100% Beneficiary
25% Beneficiary75% Medicare
$2,250
$250 Deductible 100% Beneficiary$250
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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
18
Sample High and Low Part D Plans
Low Benefit Plan
$250 Deductible
Tiered Copay: $5 generic; $20 preferred brand; $40 non-preferred brand
Extra Coverage in the Coverage Gap? No
Number of Top 100 Drugs on Formulary: 85
Mail Order offered
High Benefit Plan
$0 Deductible
Tiered Copay: $5 generic; $20 preferred brand; $40 non-preferred brand
Extra Coverage in the Coverage Gap? Yes, for generics
Number of Top 100 Drugs on Formulary: 99
Mail Order offered
19
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
20
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
21
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
22
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
23
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
25
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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QuestionsKathy: 202-833-6494 [email protected]