Part D employer retiree drug subsidy: inception, implementation and issues

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 provided a subsidy to employers that offered a retiree health prescription coverage benefit actuarially equivalent to Medicare Part D. This article reviews the development of the subsidy, the support by the federal government and the issues that have arisen. It also presents analysis of data from a set of companies that offered retiree health in 2006 and 2007. The data show widespread acceptance of the subsidy and continuance of prescription coverage; however, companies that did not take the subsidy were more likely to be smaller and in less robust financial health. Analysis of a subset of the companies shows the magnitude of the benefits paid yearly and the accounting liability caused by retiree health relative to the size of the subsidy. The author concludes that the potential success or failure of the federal subsidy in preserving retiree health benefits will not be known for years. Nevertheless, with the elimination of the deductibility of the subsidy in the Patient Protection and Affordable Care Act (PPACA), employers surely will reexamine their offer of prescription coverage to retirees.