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[tvoivozhd <tvoivozd AT infionline.net>]

Just issue regulations that are fabulously complex and which nobody can 
understand.

The New York Times
------------------------------------------------------------------------


         January 31, 2005


   Employers Can Get Medicare Subsidies for Lower Benefits

*By ROBERT PEAR *

WASHINGTON, Jan. 30 - The Bush administration has touched off a furious 
debate with new rules allowing employers to collect billions of dollars 
in federal subsidies for prescription drug benefits less generous than 
what many retirees were expecting under the new Medicare law.

In theory, those retiree benefits should be at least equal in value to 
the new Medicare drug benefit. But that will not always be the case, 
according to Medicare officials, labor unions and specialists in 
employee benefits.

In comparing retiree benefits with Medicare, the administration said, 
many employers will be able to ignore Medicare's catastrophic coverage, 
which helps people with high drug costs and accounts for about 
one-fourth of the annual value of the standard Medicare drug benefit, 
$300 out of $1,220.

Final rules for the new program were published Friday in the Federal 
Register. The new drug benefit becomes available next January.

In issuing the rules, Dr. Mark B. McClellan, administrator of the 
Centers for Medicare and Medicaid Services, said the federal subsidies 
would reverse the erosion of retiree health benefits and enable 
employers to "offer high-quality retiree coverage at a much lower cost." 
To qualify, Dr. McClellan said, employers must provide coverage "as good 
as or better than" the standard Medicare drug benefit.

But JoAnn C. Volk, a health policy analyst at the A.F.L.-C.I.O., said, 
"The rules allow an employer to get the subsidy for a benefit that is 
less valuable to retirees than what they would receive if they signed up 
for the Medicare drug benefit and the employer dropped coverage altogether."

Retirees can sign up for Medicare drug coverage if they think it is 
better than an employer's plan. Employers get no subsidy for such 
retirees. But it may be difficult for beneficiaries to compare the 
options available to them, which are likely to have different premiums 
and co-payments and to cover different medicines.

In the final rules, the administration said it had tried to balance two 
"potentially competing objectives": maximizing the number of employers 
who qualify for subsidies and "providing greater protection to 
beneficiaries."

The new Medicare drug benefit represents the largest expansion of 
Medicare since the program was created in 1965. Employers are now the 
largest source of drug coverage for retirees, and Congress wanted to 
encourage them to continue providing drug benefits, in part because 
their contributions save money for Medicare.

Accordingly, Congress authorized subsidies for employers who provide a 
retiree drug benefit at least as generous as Medicare's.

But the value of the standard Medicare benefit, especially the 
catastrophic coverage, for people with very high drug costs and multiple 
chronic conditions, is subject to different interpretation.

The Congressional Budget Office estimates that Medicare will spend $71 
billion on employer subsidies from 2006 to 2013. The maximum subsidy in 
2006 will be $1,330 per retiree. Medicare officials say the average 
subsidy payment will be $668 per retiree.

The future of retiree health benefits is a huge issue. For more than a 
decade, employers have been cutting retiree health benefits. Since 
Medicare already covers doctors' services and hospital care, 
prescription drugs account for a sizable share of the current cost of 
retiree health plans, 40 percent to 60 percent, by some estimates.

Congress hoped the new subsidies would give employers an incentive to 
continue providing retiree drug benefits. Two recent surveys found that 
many employers intended to do so, at least in 2006.

Also at issue are the standards for use of subsidies and the pivotal 
role that actuaries will play.

Congress defined the standard Medicare drug benefit. But not wanting to 
dictate the details, lawmakers will let employers and insurers offer 
different benefits if an actuary certifies that their value is at least 
equal to that of the standard coverage.

Under the law, Medicare officials said, they have broad discretion to 
specify how the value of drug benefits will be measured. Medicare is 
defining "equivalence" in a way that differs from what many retirees had 
expected, based on a layman's understanding of the term. Dr. McClellan 
said that in many cases it would not be a close call, because employers 
had better drug benefits than Medicare, and in any event, he added, 
retirees would be better off because the subsidies would enable 
employers to continue providing coverage.

The Congressional Budget Office estimates that the average cost of 
providing the Medicare drug benefit will be $1,640 for each person who 
signs up in 2006. Beneficiaries will pay about one-fourth of the cost in 
premiums, expected to average $35 a month or $420 a year, and the 
government will pay the remainder, $1,220.

Kathryn L. Bakich, vice president of the Segal Company, an employee 
benefits consulting firm, said, "The government share of the Medicare 
drug benefit is approximately $1,200 a year, but under the new rules, 
some employers can qualify for the subsidy if they provide a retiree 
drug benefit worth $900 to $1,000."

About 11.4 million retirees have drug coverage from former employers. In 
issuing rules for the new subsidy, administration officials said, they 
wanted to encourage employers to continue providing coverage without 
allowing them to obtain a windfall at taxpayers' expense.

Under the rules, employers cannot shift all costs to retirees. But Ms. 
Volk said employers could reduce retiree coverage so it would, in some 
cases, be less attractive than the Medicare benefit.

Paul W. Dennett, vice president of the American Benefits Council, a 
trade group for large employers, said the rules gave employers what they 
wanted: "a lot of flexibility in structuring retiree health benefits." 
As a result, Mr. Dennett said, "companies will be more likely to 
continue providing coverage."

Under the new law, the federal government will pay a tax-free subsidy to 
employers who provide retirees with drug benefits that meet federal 
standards. The subsidy payable to an employer will be 28 percent of a 
retiree's drug costs from $250 to $5,000 in 2006.

To qualify for the subsidy, an employer must meet two criteria: the 
overall value of its retiree drug coverage - the expected amount of 
claims paid - must be at least equal to that of the standard Medicare 
drug coverage. In addition, the net value of retiree drug coverage, 
after subtracting premiums, must equal or exceed the net value of the 
standard Medicare drug benefit.

In making these calculations, the government said, many employers can 
"disregard the value of catastrophic coverage" that will be provided by 
Medicare.

The catastrophic coverage kicks in after beneficiaries have spent $3,600 
of their own money. Costs covered by a former employer do not count 
toward that limit. Under the rules, many employers can assume that 
retirees have supplemental coverage. Such coverage lowers out-of-pocket 
costs, reducing the retirees' reliance on Medicare.

If, for example, an employer had a $3,000 limit on out-of-pocket costs, 
retirees would not have to use Medicare's catastrophic coverage, so the 
Medicare benefit would be worth less to them.

The administration said this "innovative approach" to analyzing the 
value of the standard Medicare drug benefit was recommended by several 
business groups that commented on an earlier version of the rules. The 
test adopted by the Bush administration is almost identical to one 
proposed by the American Benefits Council and the United States Chamber 
of Commerce.

Medicare officials, acknowledging that these calculations could be 
enormously complicated, said they would issue guidelines to help 
employers and actuaries understand the "actuarial equivalence test."


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