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DUAL-ELIGIBLE BENEFICIARIES WITH RETIREE DRUG COVERAGE: What Retiree
Plan Sponsors Should Know About the Risks and Choices Facing Retirees,
Spouses & Dependents, and What They Can Do to Help
SUMMARY: Certain Medicare-eligible retirees
face a prescription drug plan enrollment decision with significant
consequences as a result of the following:
- Because they are dually eligible for both
Medicare and Medicaid, they have been automatically enrolled in a
Medicare drug plan; and
- Their former employer or union retire drug
plan sponsor has informed them that they will only continue to
receive their retiree drug benefits, and in some cases retiree
medical and drug benefits, if they do not enroll in a Medicare drug
plan.
As a result, these individuals may have to choose
between remaining enrolled in a Medicare drug plan and losing their (and
their spouse’s and dependent’s) employer/union coverage, or keeping
their employer/union retiree coverage and opting out of the Medicare
drug plan in which they were automatically enrolled even though the
Medicare drug plan provides comprehensive drug coverage at minimal
cost. In some cases, additional benefits - such as Medicaid coverage of
nursing home expenses
and supplemental drug coverage from a State Pharmacy Assistance Program
(SPAP)
- may also be at risk.
Based on the best available data, several tens of
thousands of dually eligible individuals also receive retiree drug
coverage from an employer or union plan sponsor. While this number is
not large compared with the total number of Medicare-eligible retirees,
it is large enough that many retiree plans will cover one or more
affected retirees. Because the consequences for an affected retiree are
so significant, it is important that every employer and union plan
sponsor be aware of these issues and consider taking steps to reduce the
risk to and adverse impact on affected retirees. This document
provides an overview of the choices faced by these retirees and outlines
best practices employer and union plan sponsors can adopt, including:
- Providing a flexible
transition/correction period;
- Allowing spouses and dependents to
continue receiving retiree coverage when the retiree enrolls in a
Medicare drug plan;
- Adding a supplemental coverage option;
and
- Providing information to a retiree that
assists them to opt out of a Medicare drug plan when that is what
they choose to do.
BACKGROUND: The concerns addressed by this
issue paper arise as a result of two provisions of the Medicare
Modernization Act (MMA).
First, MMA requires that all dually eligible
Medicare and Medicaid beneficiaries be enrolled in a Medicare Part D
prescription drug plan by 12/31/05 to ensure that these beneficiaries
continue to have prescription drug coverage when their Medicaid coverage
ends on 12/31/05. This provision does not include an exception for
dually eligible individuals who have retiree prescription drug coverage
from a former employer or union.
Second, MMA creates a “retiree drug subsidy” that
is paid to qualified employer and union retiree drug plans to offset a
portion of the cost those plans incur when they pay for drugs that a
Medicare drug plan would have paid for had the retiree been enrolled in
a Medicare drug plan instead. In other words, the retiree drug subsidy
is intended to subsidize employer/union drug coverage that is taking the
place of Medicare drug coverage. Consequently, the subsidy is not paid
when a retiree enrolls in a Medicare drug plan.
Although MMA and regulations implementing it
expressly permit an employer/union plan sponsor that is receiving the
retiree drug subsidy to give retirees the option of enrolling in a
Medicare drug plan and receiving supplemental employer/union coverage,
rather than get all their drug coverage from the employer/union plan,
neither the statute nor the regulations require that retirees be given
the option to enroll in a Medicare drug plan and receive supplemental
coverage. As a result, a significant number of employer/union plan
sponsors do not offer any supplemental drug coverage to retirees who
enroll in a Medicare drug plan. In some cases, where the employer/union
plan covers both medical and drug costs, the plan does not provide any
supplemental medical or drug coverage to retirees who enroll in a
Medicare drug plan. The consequence of this voluntary decision by
employer/union plan sponsors is that an affected retiree can have
Medicare drug coverage, or they can have their retiree coverage, but
they can’t have both.
For the vast majority of retirees, this either/or
choice is not difficult to make because their employer/union coverage is
more generous than Medicare drug coverage, so they are better off if
they continue to receive their retiree drug coverage and do not enroll
in a Medicare drug plan. However, retirees who are eligible for
Medicare’s low income subsidy benefit - which provides drug coverage
with significantly reduced cost-sharing – will generally find they can
receive better coverage from Medicare than their retiree plan. In the
case of dually Medicare and Medicaid eligible individuals, the Medicare
drug benefit will be more generous than the vast majority of
employer/union plans.
ISSUES: The autoenrollment of dually
eligible beneficiaries with retiree coverage affects not just
retirees but spouses and dependents as well.
Implications for retirees: Most
retirees will not receive Medicare drug coverage unless they voluntarily
enroll in it. If they receive drug coverage from a retiree plan that
does not provide benefits to retirees who enroll in a Medicare drug
plan, and they do nothing, they will generally keep their current drug
coverage and not receive Medicare drug coverage. In contrast, MMA
provides for the autoenrollment of dually eligible individuals
regardless of whether they have retiree coverage. If they receive drug
coverage from a retiree plan that does not provide benefits to retirees
who enroll in a Medicare drug plan, they must affirmatively opt out of
the Medicare drug plan they were automatically enrolled; if they do
nothing they will remain enrolled in the Medicare drug plan and lose
their employer/union retiree drug benefit. So the effect of “doing
nothing” is the opposite for autoenrollees as compared to other
retirees.
In most cases, the Medicare drug benefit is
sufficiently more generous than typical employer/union coverage, that a
retiree will receive better drug coverage by remaining enrolled in the
Medicare drug plan, even when they will receive no additional
supplemental drug coverage from their retiree plan. However, the choice
is much more difficult when the employer/union plan does not provide
retiree medical coverage to retirees that enroll in a Medicare drug
plan. In this case, the individual must decide whether the more
generous Medicare drug coverage outweighs the loss of employer/union
supplemental medical coverage if he/she remains enrolled in a Medicare
drug plan.
Implications for spouses and dependents:
If a retiree’s spouse or dependents are also covered by the retiree plan
and Medicare eligible, similar choices between more generous Medicare
drug coverage and lost employer/union medical coverage arise. But if
the covered spouse or dependents are not Medicare eligible, another
trade-off arises. Employer and union retiree plans typically link
spouse/dependent coverage to the retiree’s coverage, such that a
retiree’s decision to drop their employer/union coverage would result in
the spouse and dependents losing their coverage as well. In this case,
the individual must decide whether the more generous Medicare drug
coverage outweighs the loss of not only his/her employer/union
supplemental medical coverage but the loss of spouse/dependent coverage
as well.
Additional interactions: Several
states have decided, or are considering, linking participation in
Medicaid to enrollment in a Medicare drug plan. For dually eligible
individuals in these states, particularly those in nursing homes whose
costs are being paid by Medicaid, even more severe trade-offs arise.
For example, the individual may have to choose between remaining
enrolled in a Medicare drug plan, so Medicaid will continue to pay for
his/her nursing home costs; and foregoing both Medicare drug coverage
and Medicaid nursing home payment in order to preserve employer/union
coverage for his/her spouse and dependents. A similar, though generally
less severe, situation arises when the individual receives drug coverage
from a State Pharmacy Assistance Program that has decided to make
enrollment in a Medicare drug plan a condition of continued
participation in the SPAP.
BEST PRACTICES: States and employer/union
plan sponsors can take a number of steps that significantly reduce the
risk and adverse consequences for dually eligible retirees, their
spouses and dependents. For example, several States that intend
Medicaid to “wrap around” the new Medicare drug benefit have indicated
they will also “wrap around” employer/union coverage that is actuarially
equivalent to Medicare standard drug benefit, and will not impose the
Medicaid requirement to enroll in a Medicare drug plan for beneficiaries
whose employer/union plans have told them they will lose coverage if
they enroll in a Medicare drug plan.
A number of employer and union plan sponsors have
indicated they implemented one or more of the following best practices
in an effort to reduce or eliminate the risks and adverse consequences
facing retirees and their families:
- Flexible transition/correction period:
Many plan sponsors realized that autoenrolled individuals who wish
to opt out of Medicare drug coverage in order to retain their
employer coverage may not be able to do so before the beginning of
their 2006 retiree plan year (typically starting January 1, 2006).
In recognition of this fact, they are taking a variety of steps,
including:
- Deferring any permanent changes in
retirees’ plan eligibility, enrollment or covered benefits for a
period of time to allow extra time for retirees to opt out of
their autoenrolled Medicare drug plan;
- Providing a special enrollment period for
retirees to re-enroll in the employer/union plan; and/or
- Coordinating benefits with Medicare drug
plans for a period of time until they can opt out of the
Medicare drug coverage.
- Split enrollment: Many plan
sponsors are allowing spouses and dependents to continue receiving
coverage from the employer/union plan even when the retiree enrolls
in a Medicare drug plan.
- Adding a supplemental coverage option:
Several plan sponsors indicated that although they did not initially
intend to provide a supplemental coverage option, they have
implemented one in order to address these types of situations.
- Assisting retirees to opt out of a
Medicare drug plan if that is what they choose to do: Plan
sponsors are an important source of information for retirees, and
many have provided educational materials that explain that dual
eligible beneficiaries can disenroll from a Medicare drug plan at
any time by calling 1-800-Medicare or by contacting the Medicare
drug plan in which they are enrolled.
CONCLUSION: CMS continues to reach out to
employer and union plan sponsors to make them aware of the concerns
addressed in this issue paper and to identify additional best practices,
and welcomes public comment and suggestions. More information is
available at
http://www.cms.hhs.gov or by contacting the Employer Policy and
Operations Group’s Division of Outreach.
CMS 12/29/05
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