Unions want employer subsidies for retiree drug benefits to go to health care

Proposed regulations that would give employers a tax-free subsidy for providing retiree prescription drug benefits must stipulate that those subsidies be used for retiree health benefits, and not for employer gain, unions told federal regulators Aug. 19.

Staff from the Centers for Medicare and Medicaid Services (CMS), an agency of the Department of Health and Human Services, held an open forum in Washington, D.C., to discuss the retiree prescription drug benefit provisions of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Union representatives, insurers and benefits consultants participated in person and via conference call.

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CMS proposed regulations to implement the retiree drug benefit on July 26, with a start data of Jan. 1, 2006, in an effort to halt the number of companies dropping retiree health coverage and reduce the costs of providing such coverage. Under the proposed regulations, which were published in the Federal Register on Aug. 3, employers and unions would receive a subsidy for offering prescription drug coverage that is "actuarially equivalent"--or at least as generous--to what Medicare offers. Sponsors of such coverage would receive 28 percent of incurred allowable drug costs between $250 and $5,000 in 2006 per qualifying covered retiree. CMS estimates the subsidy to average $611 per retiree in 2006.

Employers and unions may also choose to offer wraparound coverage, providing supplemental Part D benefits; many already do so with Part A and Part B (hospital and physician) Medicare benefits.

However the employer constructs the coverage, a CMS official said, "we want it to be seamless from the beneficiaries' point of view."

However, CMS staff members emphasized that they want to avoid employer "windfalls"--plans in which employer contributions to the drug benefit are smaller than the retiree drug subsidy payment from Medicare, resulting in a profit for the company.

Union representatives said they too wanted to prevent such windfalls and at least make sure that the federal subsidies are reinvested in preserving retiree health benefits.

In addition, a spokeswoman for the AFL-CIO asked the federal regulators to make sure that employers are not allowed to shift the increasing costs of providing retiree health benefits onto the retirees and still receive the subsidies.

A representative of the American Benefits Council--"those who provide health plans"--told the CMS staff that she believed the regulations were very flexible, as the legislation is, and added, "We think no employer is looking for a windfall. They just want to provide benefits to their retirees." She said she was concerned that CMS would not provide enough information to plan sponsors in time for them to bring their plans into compliance with the regulation and roll them out to retirees by the effective date about a year from now.

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