Medicare Part D & Retiree Drug Subsidy

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Medicare Part D & Retiree Drug Subsidy

MARCH 2006 - Developments At The Local Level
1. Weymouth: Mayor Agrees Subsidy To Benefit Retirees
Weymouth Mayor David Madden has assured members of that community's municipal health insurance plan that money forthcoming each year from the Medicare Retiree Drug Subsidy (RDS) program will be used to reduce future healthcare costs.

In a meeting with longtime Weymouth Retirement Board member Joe Davis, Madden agreed that RDS money should not be used for purposes other than health insurance. Aware that there is no restriction on how Weymouth could spend this money, Davis was seeking assurance that it would not be targeted for any shortfall in the town's overall budget.

"The mayor is aware of the growing need to establish some form of an insurance liability fund. I wanted to make sure that he and the retirees are on the same page," said Davis. "I feel very comfortable knowing that the mayor agrees with our position."

Since most cities and towns furnish their own prescription drug plan there is no need for retirees to join the Medicare Part D plan. As an incentive for these communities to continue with their own prescription drug program, RDS will pay a subsidy to these communities of approximately $668 each year per Medicare enrollee.

Because this annual windfall is unencumbered, mayors and local officials are free to use it for any purpose. It is our Association's position that this money should be utilized to help shore up the new health insurance liability fund that each community will be establishing under the recent Governmental Accounting Board's directive.

"The Public Service Committee has reported out healthcare liability fund legislation for the state, with a local government acceptance provision," said Association President Ralph White. "In the meantime RDS money has no restrictions on its usage. We feel that it should be appropriated toward retiree healthcare costs. I would hope that other mayors and government officials in our state will make the same commitment as Weymouth's Mayor Madden."

2. Cambridge: Foregoes Subsidy For Different Approach
A handful of municipalities, including Cambridge, have decided to terminate their existing drug coverage and forego the Retiree Drug Subsidy (RDS). Instead, they are transferring their Medicare retirees into a new prescription drug plan ("PDP") that has been officially sanctioned by the feds.

Under Part D, public and private employers are basically given three alternative approaches to prescription drug coverage for their retirees, who are enrolled in Medicare. In earlier issues of the Voice, we reported on two of these options.

First and foremost is RDS. Under this approach, a municipality continues to provide drug coverage under its current plans and, if the coverage is superior to Part D, then it receives a federal drug subsidy.

A second approach, that was featured in the January Voice, calls for a wrap-around prescription drug plan that supplements the Part D program. We believe that this option could not be effectively administered and would be confusing and frustrating for retirees.

In addition to the RDS and the wrap-around plan, there is a third option that involves a community contracting out its prescription drug coverage to an official Medicare prescription drug plan or PDP. In direct contrast to the RDS approach, the PDP, and not the community, is entitled to a subsidy from the feds. Editor's Note: Since the PDP is entitled to a federal subsidy, it should reduce the premium paid by the retiree for their drug coverage.

"We anticipate that at least for Part D's first year (2006), most communities would maintain their existing drug coverage and apply for the RDS," comments Insurance Coordinator Cheryl Stillman. "While that appears to be so, based upon our discussions with Blue Cross officials, there have been some, like Cambridge, that have decided to go a different route by adopting the third or PDP option."

Concern Over Plan Design

Beginning this January, Cambridge changed the prescription drug coverage for its Medicare retirees by contracting out that coverage to PDPs. What this meant for the city's retirees is that while their drug benefits will now be provided by a PDP, the balance of their Medicare supplemental coverage would continue to be provided by the plans that they had at the end of last year.

For example, Cambridge retirees, who were insured by Blue Cross/Blue Shield's Medex III or Managed Blue for Seniors before January 1, now have their prescription drug coverage provided by Blue MedicareRx, a PDP offered by the Blues, while the balance of their Medicare supplemental coverage continues to be provided by either Medex, namely Medex II, or Managed Blue. These retirees have been given two insurance cards - one for MedicareRx and the other for Medex.

According to healthcare experts, the PDP option may offer certain advantages to municipal officials, including less paperwork than with RDS, but there is reason for concern. That's because a municipality can decide to go with a PDP whose plan design (i.e., co-pays, deductibles and drug formularies) duplicates the existing coverage or choose an "off-the-shelf" product, which may be different and possibly offer less in terms of benefits and coverage.

"The potential danger for retirees with the PDP approach is that the plan's design, if not a copy of the existing coverage, may shift more drug costs onto the retiree with higher co-pays, deductibles or more restrictive drug formularies," cautions Stillman. "Also, it may be difficult to determine whether the federal payments, received directly by the PDP, are factored into reducing the retiree's monthly premium and if so, by how much.

"For these and other reasons, we'll be watching adoption of this approach by municipalities throughout the state. We must prevent the use of PDPs by communities to simply disguise their shifting a greater portion of overall drug costs onto our members."

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