Medicare Drug Benefit 101
09/08/2006
Medicare Part D provides prescription drug coverage to individuals 65 and older; other parts of Medicare provide coverage for hospital charges and doctors’ fees.
At 65, when an individual becomes eligible for Medicare, enrollment in the traditional hospital and physician segments is straightforward, and employer-sponsored health coverage generally becomes secondary as Medicare coverage becomes primary. While Part D is available to anyone on Medicare, enrollment is not automatic. A participant has to sign up for Part D and choose a benefit provider.
Part D coverage is provided through health insurance companies or other nongovernment entities, although coverage is overseen by the U.S. government. Providers vary in their fees and the drugs they cover. Also, a person covered by an employer-sponsored prescription drug plan cannot also enroll in Part D for supplemental coverage. Under Part D, tax-free subsidies are available to companies that provide prescription drug coverage to retirees 65 or older, provided the coverage is at least as good as that available under part D. The subsidies are to function as incentives to employers to retain their drug coverage for retirees rather than drop coverage and send retirees to the Medicare drug program.
Employers must apply for the subsidies, which are paid according to the number of retirees covered and are equal to 28 percent of allowable drug costs between $250 and $5,000 per retiree in 2006. Those threshold amounts rise to $265 and $5,350 next year.
Each year, companies can choose to continue offering coverage and collecting the subsidy, or drop it, in effect sending retirees to Part D.
At some organizations, retiree drug coverage doesn’t make the grade, so employers don’t qualify for subsidies, and their retirees 65 and older should sign up for Part D. In some but not all instances, those retirees can retain the rest of the health coverage provided by their former employer. A Part D participant pays a monthly premium and must keep track of all charges, the providers’ list of covered medicines and other details.
In June, according to the Centers for Medicare & Medicaid Services, there were 6.9 million retirees on the rolls of Medicare’s Part D subsidy program for employers. -Pamela Babcock, HR Magazine, September 2006
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