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April 22, 2008

CMS ANNOUNCES INDEXED MEDICARE PART D AMOUNTS FOR 2009

On April 7, 2008, the Centers for Medicare & Medicaid Services (CMS) announced the indexed Medicare Part D standard benefit and Retiree Drug Subsidy (RDS) amounts for 2009.^* This Capital Checkup features charts comparing the 2009 numbers and the 2008 numbers.

The Medicare Modernization Act (MMA) requires CMS to announce indexed Medicare Part D standard defined benefit amounts each year that reflect the increase in drug costs. The 2009 Medicare amounts are based on drug cost increases of 7.54 percent (up from 4.64 percent in 2008).

RDS Amounts

For 2009, plan sponsors eligible for the RDS will receive 28 percent of Part D prescription drug expenses between $295 and $6,000. The table below compares those numbers to the numbers for 2008.

*	The cost threshold is the minimum amount of covered Part D drug expenses that must be incurred by an individual before a plan sponsor is eligible to receive the RDS based on the individual’s claims.
**	The cost limit is the maximum amount of covered Part D drug expenses for which a plan sponsor may claim the RDS for each individual.

Standard Benefit Design Parameters

The table below compares the standard benefit design parameters for 2009 to the amounts for 2008.

*	Once Part D drug expenses (paid by the individual and by the Part D plan) reach the initial coverage limit, the individual is responsible for 100 percent of the costs incurred until the individual has reached the out-of-pocket threshold.
**	The out-of-pocket threshold is the amount that the individual must pay on his or her own before catastrophic coverage begins.
***	Once an individual reaches the catastrophic portion of the benefit, the Part D plan covers approximately 95 percent of the Part D drug expenses incurred. Cost-sharing is set at the greater of 5 percent coinsurance or fixed copayments (see below).

Medicare Part D Standard Benefit Design: 2008

How It Works in 2009: Individual pays $295 annual deductible Individual pays 25% of allowable costs up to $2,700 (25% of $2,700-$295) = $601.25 “Doughnut Hole”: Individual pays the next $3,453.75 After $4,350 paid out of pocket ($295 + $601.25 + $3,453.75 = $4,350), catastrophic coverage begins at $6,153.75 Individual pays nominal amount (e.g., 5% or $2.40/$6.00 copayment) of allowable costs over $6,153.75

*	For Part D plans that charge copayments in the catastrophic portion of the benefit (instead of 5 percent coinsurance), the amount of the copayment for a generic drug or for a preferred multiple source drug (i.e., generally one for which there are two or more products that are therapeutically and pharmaceutically equivalent) is set at a lower amount than the amount for any other drug.

Implications for Plan Sponsors

Prior to finalizing benefits designs for 2009, plan sponsors may wish to analyze the benefits of contracting with a Medicare Prescription Drug Plan (PDP) as opposed to retaining the RDS. In many instances, contracting with a PDP may produce a greater cost savings than the RDS because the reimbursement insurers get from CMS can be greater than what plan sponsors obtain in direct subsidy.

Plan sponsors that continue to apply for the RDS should take several actions to make sure that RDS income continues and that they are prepared for potential audits by the HHS Office of Inspector General (OIG):

• Review RDS income and assure it meets expectations,
• Assure that the contract with the RDS administrator or Pharmacy Benefit Manager accurately reflects charges for RDS and contains all language required by CMS, and
• Review internal policies and controls to assure that deadlines are met and only appropriate personnel have access to RDS information and the RDS Web site.

        

As with all issues involving the interpretation or application of laws, health plan sponsors should rely on their legal counsel for authoritative advice on the integration of Medicare with their employee benefit plans. The Segal Company can be retained to work with plan sponsors and their attorneys on issues related to Medicare Part D.

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*	This information is available on the CMS Web Site. (To return to the Capital Checkup text, click here.)

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