MEDICARE PRESCRIPTION DRUG LEGISLATION: Part D Benefits and Employer Subsidies. December 2003

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1 MEDICARE PRESCRIPTION DRUG LEGISLATION: Part D Benefits and Employer Subsidies December 2003

2 Medicare Prescription Drug, Improvement, and Modernization Act of 2003 #167572v2>Medicare Rx Program>KLB 1 Creates a Medicare Prescription Drug benefit for outpatient drugs ( Part D ) Additional Medicare changes include: Prescription Drug Discount Card Parts A & B Reimbursement Changes New Medicare Advantage rules (formerly Medicare+Choice) Means-tested Part B Premium; Increased Part B deductible New Preventive Benefits Health Savings Accounts for Actives and Retirees

3 2 Implementation Dates January 1, Health Savings Accounts available (combined with High Deductible Health Plan) Spring Prescription Drug Discount Card offered through 2004 and 2005 January 1, New Part B Preventive Services including Initial Preventive Physical Exam and Cardiovascular and Diabetes Screening Tests January 1, Part B Deductible increases from $100 to $110; annual increases thereafter based on Part B premium increases January 1, Part D Prescription Drug Benefit begins January 1, Part B Premium indexed based on income and phased in over 5-year period

4 3 Benefit Delivery System Private Prescription Drug Plans (Medicare Advantage plans and Stand-Alone PDPs) would offer the benefit to certain Medicareeligible individuals Medicare must contract with at least two plans per region (one of the plans may be a Medicare Advantage HMO rather than a PDP) If two plans do not exist in a region, the Department of Health and Human Services (HHS) can contract with limited risk or fallback plans

5 4 PDP Requirements PDPs could offer the standard benefit design, an actuarially equivalent benefit, or a supplemental benefit (additional premium could be charged) PDPs could use formularies and tiered copayments Local pharmacies must be available; any willing provider rule applies for pharmacies Individuals could use the PDP s negotiated discounts even if they are not eligible for a benefit (e.g., before the deductible is met)

6 5 Eligibility and Enrollment Entitled to or enrolled in Part A or enrolled in Part B Voluntary Enrollment Six month initial 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 not imposed in certain circumstances (not as generous as the Part B enrollment period when employer-sponsored coverage is lost)

7 6 Standard Benefit Design Monthly premium (estimate $35/month) Annual deductible $250 Coinsurance Medicare pays 75% up to $2,250 Initial Out of Pocket Maximum $3,600 Individual pays nominal amount (e.g., 5% or $2/$5 copayment) of allowable costs over $5,100 All dollars amounts are indexed

8 7 How It Works Individual pays $250 annual deductible Individual pays 25% of allowable costs up to $2,250 ( x 25% = ) Doughnut Hole: Individual pays the next $2850 After $3,600 paid out of pocket, catastrophic coverage begins at $5,100 ($250 + $500 + $2850 = $3,600) Individual pays nominal amount (e.g., 5% or $2/$5 copayment) of allowable costs over $5,100

9 8 Medicare Rx Program Examples YOU PAY CLAIMS OF $825 Deductible $250 MEDICARE PAYS Coinsurance 25/75% $ $ Doughnut Hole $0 Subtotal $ Premium $420 TOTAL $ $ CLAIMS OF $2,250 Deductible $250 Coinsurance 25/75% $500 $1,500 Doughnut Hole $0 Subtotal $750 Premium $420 TOTAL $1,170 $1,500 CLAIMS OF $5,100 Deductible $250 Coinsurance 25/75% $500 $1,500 Doughnut Hole $2,850 Subtotal $3,600 Premium $420 TOTAL $4,020 $1,500

10 9 Out-of-Pocket Maximum True Out-of-Pocket 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-ofpocket maximum HHS will take steps (such as auditing plans) to assure no third-party payments Costs are not considered toward out-of-pocket maximum if they are for non-formulary prescription drugs

11 10 Plan Sponsor Subsidies Subsidies are available to plan sponsors of a qualified retiree prescription drug plan Individuals must be eligible for but not enrolled in either a Medicare Advantage Plan (e.g., Medicare HMO) or Medicare PDP Retiree health plan must offer benefits that are actuarially equivalent to Medicare standard benefits Retiree plan must meet additional requirements: Submitting to an audit Disclosure of whether benefit is actuarially equivalent

12 11 Plan Sponsor Subsidies 28% of allowable prescription drug costs incurred between $250 and $5,000 Maximum reimbursement $1,330 per individual Based on actual incurred costs for covered Part D prescription drugs excluding administrative costs, discounts and rebates Reimbursement mechanism will be established by HHS -- payments may be annual or another interim time period Amount of subsidy is not taxable to the plan sponsor

13 12 Who Receives the Subsidy? Group Health Plans: Defined as employee welfare benefit plans providing medical care directly or through insurance, reimbursement, or otherwise Federal, state and local governmental plans Collectively bargained plans If the CB plan is sponsored by one employer and a union, and the employer is the primary source of financing, the employer receives the subsidy Multiemployer plans Church plans

14 13 New Disclosure Requirements Group Health Plans that provide prescription drug benefits must disclose to participants and HHS whether the prescription drug benefit is actuarially equivalent to the Medicare Part D benefit Disclosure is for purposes of determining whether the individual had creditable coverage and can enroll in the Part D program without paying a late enrollment penalty Unclear whether disclosure applies to all plans providing prescription drug coverage or only actuarially equivalent plans

15 14 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 Pay all or part of the Medicare PDP or Medicare Advantage Part D premium for their retirees Provide a supplemental 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) Provide prescription drug coverage that is better than the Medicare standard prescription drug benefit

16 Plan Sponsor Actions Plan sponsors should: Investigate how much current retiree outpatient prescription drug benefits cost Review the current benefit plan and determine whether the Plan Sponsor needs to look at retire drug costs in a new way in order to evaluate the impact of Part D Get the necessary data to make these determinations Isolate retiree-only costs from actives Determine the impact of the Part D benefit and subsidies on the Plan Is the plan actuarially equivalent to the Medicare Prescription Drug Benefit? If it is, how much are the subsidies for providing retirees with prescription drug coverage? If it is not, what alternatives should be evaluated with respect to the Part D benefit (e.g., pay monthly premiums, deductibles, coinsurance)? Determine the impact on retiree health valuations #167572v2>Medicare Rx Program>KLB 15

17 16 Prescription Drug Discount Card Discount Card available in 2004 and 2005 Individual would enroll in a card program and pay a fee in order to utilize the discount program (maximum $30/annual fee) Individual would receive access to negotiated discounts from card sponsor Cards would be subsidized for low-income individuals (but only those without another health plan that provides prescription drug coverage)

18 17 What we need to know Many questions are not answered by the statute and should be addressed in implementing regulations: How will the health industry respond to the challenge of creating PDPs and Medicare Advantage plans with drug coverage? Are retiree payments included in the calculation of allowable costs for purposes of obtaining a subsidy? If so, this increases the amount of the subsidy. Are subsidies available only on behalf of individual retirees, or are spouses who are Medicare eligible included? If a plan has employee contributions, are they considered in the determination of whether the plan is actuarially equivalent? Will there be any restrictions on employer-sponsored plan benefits or network flexibility? How will the subsidy be paid? How will the disclosure obligation work?

19 OPERS and Medicare Rx: Two ways to benefit Remain as primary (only) Rx insurance and accept a 28% reimbursement from Medicare, OR... Require benefit recipients to accept Medicare Part D as primary, reimburse the monthly premium, and pay secondary... Much like we do now for Medicare B.

20 OPERS Financial Implications: OPERS Data (2002) Primary vs. Secondary Benefit recipient: 9.9% OPERS remains Primary Medicare: 22.8% Ben Recip: 9.9% OPERS: 67.3% OPERS: 90.1% OPERS as Secondary Medicare: 22.3% Ben Recip: 9.9% Notes: 1. Assumes OPERS pays Medicare Part D premium 2. Medicare percent translates to approx. $54 million based on 2002 OPERS Rx expenses of $239 million. OPERS: 67.8%

21 What it means in 2002 Dollars Current Experience OPERS Primary OPERS Secondary OPERS' portion of drug and dispensing cost 215,654, ,064, ,007,986 Medicare Part D Premium 47,414,640 Total OPERS cost: 215,654, ,064, ,422,626 Portion of Rx cost paid by Medicare 54,589,993 53,231,387 Member's Share (co-pays, currently 9.9%) 23,587,866 23,587,866 23,587,866 TOTAL DRUG COST: 239,241, ,241, ,241,879 Assumptions: Based on OPERS 2002 experience and Plan design 112,892 insured lives over 65, of which 105,395 used the Plan