WASHINGTON, Jan. 30 - The Bush administration has touched off a furious debate with new rules allowing employers to collect billions of dollars in federal subsidies for prescription drug benefits less generous than what many retirees were expecting under the new Medicare law.þþIn theory, those retiree benefits should be at least equal in value to the new Medicare drug benefit. But that will not always be the case, according to Medicare officials, labor unions and specialists in employee benefits.þþIn comparing retiree benefits with Medicare, the administration said, many employers will be able to ignore Medicare's catastrophic coverage, which helps people with high drug costs and accounts for about one-fourth of the annual value of the standard Medicare drug benefit, $300 out of $1,220.þþFinal rules for the new program were published Friday in the Federal Register. The new drug benefit becomes available next January.þþIn issuing the rules, Dr. Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services, said the federal subsidies would reverse the erosion of retiree health benefits and enable employers to ÿoffer high-quality retiree coverage at a much lower cost.ÿ To qualify, Dr. McClellan said, employers must provide coverage ÿas good as or better thanÿ the standard Medicare drug benefit.þþBut JoAnn C. Volk, a health policy analyst at the A.F.L.-C.I.O., said, ÿThe rules allow an employer to get the subsidy for a benefit that is less valuable to retirees than what they would receive if they signed up for the Medicare drug benefit and the employer dropped coverage altogether.ÿþþRetirees can sign up for Medicare drug coverage if they think it is better than an employer's plan. Employers get no subsidy for such retirees. But it may be difficult for beneficiaries to compare the options available to them, which are likely to have different premiums and co-payments and to cover different medicines.þþIn the final rules, the administration said it had tried to balance two ÿpotentially competing objectivesÿ: maximizing the number of employers who qualify for subsidies and ÿproviding greater protection to beneficiaries.ÿ þþThe new Medicare drug benefit represents the largest expansion of Medicare since the program was created in 1965. Employers are now the largest source of drug coverage for retirees, and Congress wanted to encourage them to continue providing drug benefits, in part because their contributions save money for Medicare.þþAccordingly, Congress authorized subsidies for employers who provide a retiree drug benefit at least as generous as Medicare's.þþBut the value of the standard Medicare benefit, especially the catastrophic coverage, for people with very high drug costs and multiple chronic conditions, is subject to different interpretation.þþThe Congressional Budget Office estimates that Medicare will spend $71 billion on employer subsidies from 2006 to 2013. The maximum subsidy in 2006 will be $1,330 per retiree. Medicare officials say the average subsidy payment will be $668 per retiree.þþThe future of retiree health benefits is a huge issue. For more than a decade, employers have been cutting retiree health benefits. Since Medicare already covers doctors' services and hospital care, prescription drugs account for a sizable share of the current cost of retiree health plans, 40 percent to 60 percent, by some estimates. þþCongress hoped the new subsidies would give employers an incentive to continue providing retiree drug benefits. Two recent surveys found that many employers intended to do so, at least in 2006.þþAlso at issue are the standards for use of subsidies and the pivotal role that actuaries will play.þþCongress defined the standard Medicare drug benefit. But not wanting to dictate the details, lawmakers will let employers and insurers offer different benefits if an actuary certifies that their value is at least equal to that of the standard coverage. þþUnder the law, Medicare officials said, they have broad discretion to specify how the value of drug benefits will be measured. Medicare is defining ÿequivalenceÿ in a way that differs from what many retirees had expected, based on a layman's understanding of the term. Dr. McClellan said that in many cases it would not be a close call, because employers had better drug benefits than Medicare, and in any event, he added, retirees would be better off because the subsidies would enable employers to continue providing coverage.þþThe Congressional Budget Office estimates that the average cost of providing the Medicare drug benefit will be $1,640 for each person who signs up in 2006. Beneficiaries will pay about one-fourth of the cost in premiums, expected to average $35 a month or $420 a year, and the government will pay the remainder, $1,220.þþKathryn L. Bakich, vice president of the Segal Company, an employee benefits consulting firm, said, ÿThe government share of the Medicare drug benefit is approximately $1,200 a year, but under the new rules, some employers can qualify for the subsidy if they provide a retiree drug benefit worth $900 to $1,000.ÿþþAbout 11.4 million retirees have drug coverage from former employers. In issuing rules for the new subsidy, administration officials said, they wanted to encourage employers to continue providing coverage without allowing them to obtain a windfall at taxpayers' expense. þþUnder the rules, employers cannot shift all costs to retirees. But Ms. Volk said employers could reduce retiree coverage so it would, in some cases, be less attractive than the Medicare benefit.þþPaul W. Dennett, vice president of the American Benefits Council, a trade group for large employers, said the rules gave employers what they wanted: ÿa lot of flexibility in structuring retiree health benefits.ÿ As a result, Mr. Dennett said, ÿcompanies will be more likely to continue providing coverage.ÿþþUnder the new law, the federal government will pay a tax-free subsidy to employers who provide retirees with drug benefits that meet federal standards. The subsidy payable to an employer will be 28 percent of a retiree's drug costs from $250 to $5,000 in 2006.þþTo qualify for the subsidy, an employer must meet two criteria: the overall value of its retiree drug coverage - the expected amount of claims paid - must be at least equal to that of the standard Medicare drug coverage. In addition, the net value of retiree drug coverage, after subtracting premiums, must equal or exceed the net value of the standard Medicare drug benefit.þþIn making these calculations, the government said, many employers can ÿdisregard the value of catastrophic coverageÿ that will be provided by Medicare.þþThe catastrophic coverage kicks in after beneficiaries have spent $3,600 of their own money. Costs covered by a former employer do not count toward that limit. Under the rules, many employers can assume that retirees have supplemental coverage. Such coverage lowers out-of-pocket costs, reducing the retirees' reliance on Medicare. þþIf, for example, an employer had a $3,000 limit on out-of-pocket costs, retirees would not have to use Medicare's catastrophic coverage, so the Medicare benefit would be worth less to them.þþThe administration said this ÿinnovative approachÿ to analyzing the value of the standard Medicare drug benefit was recommended by several business groups that commented on an earlier version of the rules. The test adopted by the Bush administration is almost identical to one proposed by the American Benefits Council and the United States Chamber of Commerce.þþMedicare officials, acknowledging that these calculations could be enormously complicated, said they would issue guidelines to help employers and actuaries understand the ÿactuarial equivalence test.ÿþþþþþþ
Source: NY Times
