September 2006 Public Sector Letter, "Designing a Retiree Rx Strategy for 2007 and Beyond"


Retiree health coverage continues to be a high-priority issue for public sector employers. Last year, they studied the impact of the availability of Part D coverage on their retiree health benefits and decided on a course of action for 2006 in preparation for the January 1, 2006 effective date of Medicare Part D outpatient prescription drug coverage.

Many public employers are beginning to think about future years, especially in light of the fast-approaching effective date of new accounting requirements introduced by the Governmental Accounting Standards Board (GASB), which will highlight the long-term liability of retiree health costs for public sector employers and the plans they sponsor. This Public Sector Letter discusses the following options that are receiving the most attention for 2007:

  • Continue to apply for the Retiree Drug Subsidy,
  • Contract with a Medicare Part D Plan, either a Medicare Prescription Drug Plan (PDP) or a Medicare Advantage Prescription Drug Plan (MA-PD Plan),
  • Supplement a PDP, and
  • "Become" an "Employer-Direct Contract PDP."

This Public Sector Letter also highlights the following factors that employers should take into account when creating a retiree prescription drug strategy for 2007 and:

  • Legal restrictions on coverage obligations,
  • Communications challenges,
  • Effect of Part D Reimbursements on GASB Other Postemployment Benefits (OPEB) liabilities.

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