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

Area of Science:

• Health Economics
• Public Policy
• Retiree Benefits

Background:

• The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 introduced a subsidy for employers offering retiree prescription drug benefits.
• This subsidy aimed to maintain employer-sponsored retiree health coverage equivalent to Medicare Part D.

Purpose of the Study:

• To review the development and federal support of the Medicare Part D employer subsidy.
• To analyze the impact of the subsidy on employer-sponsored retiree prescription coverage using 2006-2007 data.
• To examine the financial implications for companies offering retiree health benefits.

Main Methods:

• Review of legislative history and federal support for the subsidy.
• Analysis of company data from 2006 and 2007 regarding subsidy acceptance and prescription coverage.
• Examination of financial data, including benefits paid and accounting liabilities, relative to subsidy size.

Main Results:

• Widespread acceptance of the Medicare Part D subsidy by employers was observed, leading to the continuation of prescription coverage.
• Companies that declined the subsidy were predominantly smaller and financially less stable.
• Analysis revealed the yearly benefits paid and the accounting liability associated with retiree health plans in relation to the subsidy.

Conclusions:

• The long-term success of the federal subsidy in preserving retiree health benefits is yet to be determined.
• The elimination of subsidy deductibility under the Patient Protection and Affordable Care Act (PPACA) will likely prompt employers to reassess their retiree prescription coverage offerings.