New Medicare Plan Presents a Drug Benefit Conundrum
Louis A. deBottari, a 78-year-old retired aerospace worker with ample drug coverage in his health plan, recently opened an envelope from
The notice, sent to about 100,000 Boeing retirees and their dependents, discussed the new Medicare drug insurance program that begins in January and what it means for retirees already covered by the company's health plan.
"In general," Mr. deBottari read, "your Boeing prescription drug coverage is more generous than standard Medicare prescription drug coverage." So far, so good.
But a bit farther down came a warning, if Mr. deBottari was nonetheless tempted to give the new Medicare program, called Part D, a try: "Your Boeing prescription drug coverage is part of your Boeing retiree medical plan. If you cancel your Boeing prescription drug coverage, your Boeing medical coverage also will be canceled."
Many other retirees fortunate enough to already have drug coverage are receiving similar warnings from their former employers as the new Medicare drug benefit approaches.
This was not necessarily what Congress intended when it passed the Medicare law two years ago, extending drug insurance to more than 40 million older and disabled Americans.
The aim then was to provide benefits similar to those already enjoyed by a more fortunate minority of retirees - about 10 million, currently - who have drug coverage from former employers.
In practice, though, that fortunate minority is worrying about the future of its own benefits. And the message many are receiving from their former employers is a surprisingly stern one: Stay put - or else.
The attitude may be understandable. Many employers generally offer drug benefits within a comprehensive package that also covers doctors' services and hospital care. They typically do not charge a separate premium for drug coverage and do not administer it as a separate benefit. And so they say they have no convenient way to split up the benefits package they now offer.
There is another factor. Like other employers who continue offering drug insurance as good as or better than Medicare's, Boeing will receive a federal subsidy for the drug purchases of each retiree it retains. Many of those companies have shown little interest in continuing to provide other, increasingly expensive health coverage to a retiree if they lose the drug subsidy.
And so Mr. deBottari is staying put and trying to ignore reports that big employers like
By Nov. 15, all employers who offer drug coverage to retirees and employees 65 and older are required to tell those beneficiaries how the company's drug plan compares with Part D. Employers must also inform retirees of any changes in their existing health benefits.
In a survey early this year of 458 large employers that had retiree health plans, 82 percent said they planned to continue drug coverage for retirees under those plans, according to the benefits consulting firm Watson Wyatt.
During the current advisory period, many large employers that offer retiree drug coverage - including G.M., Caterpillar,
And "more so than not, plan sponsors are saying if you join Medicare Part D, you will be out of our plan," said Edward Kaplan, a senior health care consultant at the Segal Company, a benefits consulting firm. A notable exception is G.M., which is letting retirees keep their other company health benefits, even if they sign up for Part D.
Staying in a company's plan allows retirees to fend off an often bewildering array of choices promoted by insurers and other private sponsors of Part D plans, which are overseen by Medicare but actually provided by private industry. In some parts of the country, older Americans may have up to 45 Medicare plans to choose among, with premiums that average $32 a month but coverage and co-payments that vary widely.
"I don't have to deal with Medicare Part D and I'm delighted," said Marlene Barnes, 69, a retired federal office worker in Memphis, whose health benefits are provided by the Federal Employees Health Plan.
People who do want to sign up for a Medicare drug plan can do so penalty-free from Nov. 15 to May 15; there could be increasingly stiff late-fee penalties for those who delay. But the penalties will not apply to retirees who currently have solid employer-sponsored coverage but who shift later to a Medicare plan - if, say, their current employer-sponsored plans are curtailed or ended.
The number of companies providing retiree health benefits has been shrinking for decades, as rising costs for drugs and other health needs have cut sharply into profits. And benefit consultants say that many employers, after seeing how things work out with the Medicare subsidies in 2006, will be weighing possible changes in their retiree benefits for 2007 and beyond.
Only one in three employers with 200 or more workers currently provide retiree health benefits, down from 66 percent that offered these benefits in the late 1980's, according to the most recent survey by the Kaiser Family Foundation and the Health Research and Educational Trust. This year, even before Part D became an issue,
Whether the new Medicare subsidies will halt the decline in retiree benefits, as some Bush administration officials have predicted, is unclear.
J. C. Penney said it was ending drug coverage for 9,500 retirees eligible for Medicare. Tim Lyons, a spokesman for Penney, said it would help out during a one-year transition by paying 55 percent of the premiums for an AARP plan operated by UnitedHealth Group that covers drug costs not covered by Medicare.
"The government will actually pay employers to continue to provide something," said Helen Darling, president of the National Business Group on Health, an organization of large employers. "If this works, it may be a model for some other things in the future."
Caterpillar, which provides retiree health benefits to more than 30,000 people, is filing for the federal subsidy. "Although the general trend has been to drop retiree health coverage," said Linda Fairbanks, a Caterpillar spokeswoman, "the new federal program, with the subsidy, will help Caterpillar and other employers continue to provide health benefits."
The subsidies will equal 28 percent of a retiree's drug costs, from $250 to $5,000 in 2006, whether those costs are paid by the employer or the retiree. The Bush administration estimates that the subsidy payments to employers will average $668 for each qualified retiree in 2006, with a maximum of $1,330 per retiree.
Many predict that the program could be vulnerable to cost-cutting. The Congressional Budget Office has estimated that Medicare will spend $71 billion on employer subsidies from 2006 to 2013, including $5 billion next year.
Larry Boress, vice president of the Midwest Business Group on Health, a regional employers' group, warned of possible cutbacks. "The subsidy is a good step, but is it going to be maintained, or reduced over time?" Mr. Boress asked. "Congress is looking for money." Even at the current level, the subsidy is not enough to offset employers' rising health costs. Before G.M.'s recent announcement of cutbacks in benefits, the company had used its 2004 drug costs as a model and calculated that the new Medicare law would have reduced those costs for current and future retiree benefits on its income statement by $603 million. That would not be enough to wipe out the $871 million increase in G.M. retiree health costs for the year.
Some big employers, including
Mr. Kaplan at Segal said that nearly two-thirds of his company's clients were taking the Medicare subsidy. "But they are wrestling with the strategy," he said: "Should we continue to protect our members' against health care expenses? What is our commitment to them? Can we afford to do it?"
Some small employers that still provide retiree drug benefits say the Medicare subsidy may not be worth the trouble, at least for the first year. The town government of Normal, Ill., with only 20 eligible retirees and spouses, found that costs for consultants and preparing paperwork to apply for the subsidy would outweigh the $6,000 that Normal could expect from Medicare, said Pamela Reece, a town official.
Instead of applying for the subsidy, Normal intends to continue its current health plans and offer extra coverage to fill in the gaps in Part D plans for retirees who decide to join a plan operated by an insurance company.
In other cases, the current benefits provided by smaller employers may not meet the minimum Medicare standards. "Many of our cooperatives might not qualify for the subsidy," said Scott M. Spencer, senior vice president of the National Rural Electric Cooperative Association. Mr. Spencer's group is offering its own Part D drug plan in 47 states.
In the meantime, few of those 10 million retirees whose coveted drug benefits the new Medicare program was meant to emulate, are feeling secure.
"I'm worried," said Mr. deBottari, the aerospace retiree.
