By way of background, the federal law, that created the Medicare Part D (prescription drug) program in 2003, offered an incentive to communities whose insurance programs offered their retirees equivalent or better prescription drug coverage than Part D. Beginning in ’06, these communities would be eligible for a drug subsidy, or RDS, for each Medicare retiree.

“Back then, we recognized that the feds failed to specify how the RDS could be used,” according to Legislative Liaison Shawn Duhamel. “We warned that it would be open season on this money, and from the sampling that we’ve made, that appears to have happened in most cases.”

Being the largest insurer, there was particular interest in what the Commonwealth would be doing with its millions from RDS. In March ’04, we estimated that the state would receive approximately $22 million in ’06.

According to the state’s Group Insurance Commission (GIC), the Commonwealth has been paid the first installment of $9 million for 2006. They anticipate two or three more installments with a total RDS payment of approximately $20 million for last year.

“We urged the GIC to use the RDS for the retirees, either to refund the Medicare Part B premium or, at least, to be placed in a separate account to pay future retiree healthcare costs,” continues Duhamel. “But the nine million was deposited in the state’s General Fund.”

Similar action also occurred in Worcester. “In November ’05, the Association estimated that Worcester would receive some $2 million in RDS payments,” according to Association member Ed McGovern, who is the retiree representative on the city’s insurance advisory committee (IAC).

“For ’06, Worcester is receiving about $1.8 million. We hoped that the money would be used to help the retirees with their insurance costs, but instead it apparently is going directly into the city’s general fund.”

There’s Some Good News

While the overall results haven’t been as hoped, the news is not all bad. Some communities decided to use their RDS payments toward retirees and their healthcare costs.

A year ago (March’06 Voice), we reported that Weymouth Mayor David Madden pledged to use the city’s RDS payments toward reducing future healthcare costs. Weymouth has received approximately $126,000.

“After meeting with Mayor Madden last year, we felt comfortable that the subsidy would not simply go to the general fund but would be used to help retirees with the cost of their health insurance,” states Deputy Fire Chief Joe Davis, who is an elected member on the city’s retirement board. “I can report that the RDS money has been deposited in the Health Claims Trust Fund for the benefit of retirees, employees and survivors.”

“Tewksbury received over $172,000 in RDS payments for ’06,” reports firefighter Mike Hazel, who chairs the towns public employee committee (PEC). (See related story on Tewksbury’s PEC, p. 15) “This money has been deposited in the town’s health insurance trust fund, which benefits retirees, employees and survivors alike.”

“What Tewksbury has done is commendable,” comments Duhamel. “As stated earlier, the subsidy should, at a minimum, be set aside for future healthcare costs. And, while last year may have come up short, there’s always this year.”

In order to be eligible in ’07, the state and municipalities, whose health insurance contracts begin on July 1, must have applied for RDS by March 31. According to the federal agency that administers RDS, the Centers for Medicare and Medicaid Services (CMS), approximately 6.9 million retirees, from both the public and private sector are enrolled in insurance plans that are receiving RDS payments for 2006.