Plan sponsors are also working to implement all of the steps to assure that they can obtain the Retiree Drug Subsidy (RDS). The RDS program has issued new guidance about obtaining the subsidy. Finally, plan sponsors will soon begin thinking about their 2007 benefit plan design and how best to coordinate with the new Medicare program.

This Capital Checkup examines the following three aspects of the Medicare prescription drug program:

• The RDS and what's next from the RDS Center,
• Issues regarding enrollment in the Medicare program that frequently arise with retirees, and
• The outlook for retiree drug options in 2007.

Retiree Drug Subsidy: Next Steps

Plan sponsors were required to complete the RDS online application process by October 31, 2005 for plan years ending in 2006. In 2006, a majority of large private-sector employers that currently offer health benefits to retirees will continue to offer prescription drug benefits and accept the tax-free subsidy for Medicare-eligible retirees, which CMS estimates to be $668 per individual per year, on average. Most of these plan sponsors are likely to continue to apply for the RDS in 2007, but may revisit their decision in subsequent years.

For plan years ending in 2007 and beyond, applications must be filed no later than 90 days before the beginning of the plan year. For calendar-year plans, this means the next application is due September 30, 2006. However, the application date will come earlier for non-calendar year plans. For example, plans with a May 1 plan year must file a new application (or request an extension online) no later than January 31, 2006.

Plan sponsors that requested monthly RDS payments can submit January claims this coming February. It is unclear when RDS payments will begin. A reconciliation with detailed claims information must be submitted to RDS no later than 15 months after the end of the plan year for which the subsidy is obtained.

Plan sponsors may have completed the application, but substantial administrative work is necessary before the plan will actually receive the RDS subsidy payments. Plan sponsors should consider the following steps:

• Complete the written sponsor agreement. The RDS application process requires that plan sponsors sign an agreement with the group health plan or insurer permitting exchange of information for purposes of receiving the RDS subsidy. According to CMS, this applies to self-insured and self-administered programs, as well. Agreements were required to be in place by December 31, 2005.
• Get ready to reconcile and update retiree demographic files. Plan sponsors that finished their RDS application will soon be receiving files indicating whether (or not) each retiree is eligible for the subsidy. It is highly likely that large numbers of retirees will be rejected for reasons related to data errors (e.g., wrong name or wrong Social Security number). Some individuals may be rejected because they are not currently eligible for Medicare. There may also be missing or inconsistent data on Medicare-eligible disabled employees or employees with End Stage Renal Disease, who are also eligible for the subsidy. If the plan sponsor is submitting the information, it will have to reconcile the data and resubmit corrected information to the RDS system. If the plan sponsor has delegated this effort to a pharmacy benefit manager (PBM) or insurer, it should confirm that they are completing the information filing. CMS will also have an appeals process if a plan sponsor wants to appeal CMS's rejection of a retiree on the list.
• Coordinate efforts with insurers and PBMs. Many insurers took over all aspects of the RDS application process on behalf of plans, as did some PBMs. Many other PBMs only agreed to submit claims information, not eligibility data. If these roles have not yet been clarified, they should be as soon as possible. In addition, it is important to clarify who has responsibility for filing the final reconciliation with the RDS system, which is due no later than 15 months after the end of the plan year.
• Negotiate terms with PBMs and insurers for RDS activity. Many PBMs and insurers charge additional fees to administer the RDS program. If fees have not yet been negotiated, this should be finalized. Some fees initially proposed by vendors were revised after negotiation and clarification to be more reasonable and appropriate for the services provided.
• Set up the payment process on the RDS system. Plan sponsors will need to designate someone to report subsidy-eligible claims on their behalf to CMS for each benefit option (the "Cost Reporter") and to request subsidy payment once the claims are submitted (the "Payment Requestor"). Rules on how to set up the payment process will be issued by the RDS system, but are not yet available.
• File the Notice of Creditable Coverage with CMS. Plan sponsors are required to file a Notice of Creditable Coverage with CMS as a condition of receiving the RDS subsidy. (Plan sponsors not receiving the subsidy still have obligations regarding the Notices.) In early January, CMS issued guidance on this disclosure requirement. By March 31, 2006, plan sponsors that are required to file the disclosure with CMS must do so online. (For more information about this guidance, see The Segal Company's January 2006 Bulletin, "Guidance on Disclosing Medicare Part D Creditable Coverage Status to CMS.".)

Part D Enrollment Issues

Plan sponsors providing retiree health benefits need to be familiar with some enrollment issues that may arise now that Medicare beneficiaries can sign up for a Part D plan. Among these issues are the following:

• Multiple Enrollments Plan sponsors may not be aware that there are actually two enrollment periods for each Medicare beneficiary from November 15, 2005 to May 15, 2006 — an "annual" enrollment and an "initial" enrollment. Consequently, Medicare beneficiaries have two opportunities to enroll during this period. If they enroll in a Part D plan they will generally have one chance to switch to another plan before May 15, 2006, unless a special enrollment opportunity exists. It is important to keep this in mind when communicating with retirees who may have made an ill-advised choice in the first decision on a Medicare prescription drug plan. (It is unclear how many retirees and their adult children understand the new Medicare benefit and are able to make good choices for themselves and their families. A November 2005 Wall Street Journal Online/Harris Interactive Health Care Poll found that more than half of Medicare beneficiaries had looked at general information about the Part D program, but 71 percent still say that the program is somewhat or very hard to understand.) An individual enrolled in one PDP will automatically be disenrolled from it if he or she enrolls in another Part D plan.
• RDS Subsidy Plan sponsors must submit lists of retirees and dependents eligible for the RDS to CMS. CMS will notify plan sponsors if any of these individuals attempts to sign up for a Medicare prescription drug plan. The individual's enrollment in the Medicare plan will be denied, pending the plan sponsor notification. If the individual says, "go ahead and enroll me" to the Medicare prescription drug plan, then the Medicare plan will enroll them. If they do not affirm their intent to enroll with the Medicare plan, the Medicare enrollment will be denied. Plan sponsors will need to train customer service representatives and benefits staff how to respond to questions from these individuals. Plan sponsors will lose any subsidies for those participants who also enroll in a Medicare plan. Plan sponsors also need to determine if they will continue to cover these individuals or drop them from their group health plan.
• Medicare Beneficiaries Who Are also Eligible for Medicaid As of January 2006, Medicaid will no longer provide drug coverage for Medicare-eligible individuals. The Medicare statute requires that CMS automatically enroll ("auto-enroll") individuals in a Medicare Prescription Drug Plan (PDP) if they are eligible for both Medicare and Medicaid (known as "dual eligibles"). These individuals will receive a CMS low-income subsidy for payment of premiums and deductibles if they are in a Part D plan. Many of these individuals may also have group health plan coverage, particularly individuals who are in nursing homes. Note that plan sponsors eligible for RDS will not be notified by CMS when these individuals are auto-enrolled in a Part D plan. If a dual-eligible prefers to stay in the group health plan, and not be in a Part D plan, he or she must take steps to get out of the Medicare plan into which they have been auto-enrolled. This may be particularly important if the plan terminates all medical and drug coverage for individuals enrolled in a Medicare PDP. Individuals in these types of employer-sponsored plans could inadvertently lose medical coverage for themselves and their dependents due to the auto-enrollment.
  
  On December 29, 2005, CMS published a fact sheet for plan sponsors explaining auto-enrollment for dual eligibles.¹ CMS suggests that the following are "best practices"; however, none of these steps are required.
  
  
  • Create a flexible transition/correction period for individuals who want to opt out of Medicare coverage and retain their group health plan coverage,
  • Split enrollment so that spouses and dependents can stay in the group plan even if the retiree enrolls in Medicare Part D,
  • Add a supplemental coverage option for those enrolled in Medicare or
  • Assist retirees to opt out of a Medicare drug plan.
• Plan Sponsors Contracting with PDPs Some plan sponsors may have "group enrolled" retirees in a Medicare PDP or Medicare Advantage plan with prescription drug coverage. In this case, dual beneficiaries who were auto-enrolled in a different PDP will be transferred into the group health plan's PDP. This is because the latest enrollment in a Part D plan will be the one that is effective. Similarly, if a retiree signs up for a Part D plan after he or she has been group enrolled, the latest plan joined will be the one that is effective. The individual will lose his or her coverage in the group plan.
• Plan Sponsors Contracting with Medicare Advantage Plans Plan sponsors can group enroll their retirees in a Medicare Advantage plan with drugs (usually an HMO). However, if a retiree or spouse mistakenly signs up for a different Medicare PDP after the group enrollment has occurred, this will void their Medicare Advantage plan enrollment. This could result in inadvertent loss of medical coverage through the HMO. Plan sponsors need to talk to their HMOs about creating a process to "fix" mistakes in enrollment by retirees.
• TRICARE and Veterans Administration Benefits Both TRICARE and Veterans Administration (VA) benefits are Creditable Coverage. That means that a retiree can stay in these plans and not sign up for a Medicare Part D prescription drug plan, and still avoid a late enrollment penalty. Many retirees are confused about the relationship of TRICARE and VA benefits to Part D, and may ask plan administrators for help sorting the issues out.

Retiree Drug Options for Group Health Plans in 2007

Plan sponsors that took the RDS were able to maintain their same benefit plan for 2006, and obtain a substantial subsidy from the federal government. Clearly there were costs associated with receiving the RDS money; particularly in terms of PBM fees and administrative complications. Plan sponsors taking the subsidy need to track their subsidy income for 2006 carefully to assure that it is being reported properly and is meeting expectations. It may be necessary to obtain an entire year's worth of experience in order to determine whether the subsidy is the right course of action for future years, but plan sponsors should have a process in place to study the financial implications of the subsidy in 2006.

Although a majority of plan sponsors took the subsidy for 2006, several new options are now available to plan sponsors and are worth a closer look. Plan sponsors that want to switch to a supplemental benefit to Part D can either contract with a Part D plan for a prescription drug program or continue their current benefit but pay secondary to Medicare. Both options should be studied to determine whether they are administratively and financially feasible for the plan sponsor and its retirees. Medicare-approved PDPs will submit bids for 2007 in June 2006. The National Average Monthly Bid for 2006 was $92.30, and Part D Base Beneficiary Premium was $32.20. These amounts were lower than estimated by CMS. Depending on plan experience, drug costs, and 2006 bid rules, the average bid and base premium could change substantially.

Plan sponsors may wonder whether plans will drop out of the market, as happened with Medicare+Choice plans in the late 1990s. It is unlikely that disruption in the market would occur in 2006. Plans have to give at least 90 days notice to CMS in order to terminate their programs, and must also give prior notice to enrollees of any plan terminations. Whether plans will drop out in 2007 will depend on experience and 2007 Medicare payment rates, and should be apparent by mid-2006.

Plan sponsors that want to "become" their own Part D plan for 2007 must file a Notice of Intent with CMS by January 17, 2006, and an application by March 20, 2006. Both documents require time, effort and coordination with service providers to complete, and the application is quite time-consuming. Plan sponsors becoming a Part D plan need to find a PBM partner to help them in the process, and must be able to file their own formulary and a bid in April and June of 2006, respectively. This option is particularly attractive for large plan sponsors who want to maintain control of the retiree plan design and have the ability to finance the cost to establish their own PDP.

Whatever option the plan sponsor selects, they should keep in mind that the Medicare Part D Standard Benefit Amounts ($250 deductible, 75 percent/25 percent cost-sharing to $2,250, $3,600 out-of-pocket maximum) will be indexed for 2007 based on the cost of drug inflation. New amounts will be announced sometime between February and April 2006.

Coordination with Medicare Part D is complicated and time-consuming, but if financial estimates work out as projected, it could be a significant cost savings to plan sponsors for their retiree costs in 2006 and beyond.

As with all issues involving the interpretation or application of laws, health plan sponsors should rely on their legal counsel for authoritative advice on Medicare Part D. The Segal Company can be retained to work with plan sponsors and their attorneys to evaluate the impact of the law and comply with it. Segal is already assisting clients with administrative oversight related to RDS, vendor relations, communications, actuarial attestation, plan redesign and evaluating potential savings for all options.

1	Click on the underlined text to see the CMS fact sheet. (To return to the Capital Checkup text, click here.)