Medicare Law Is Seen Leading to Cuts in Drug Benefits for Retirees

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http://www.nytimes.com/2004/07/14/politics/14medicare.html?th

 

July 14, 2004

Medicare Law Is Seen Leading to Cuts in Drug Benefits

for Retirees

By ROBERT PEAR

 

WASHINGTON, July 13 - New government estimates suggest

that employers will reduce or eliminate prescription

drug benefits for 3.8 million retirees when Medicare

offers such coverage in 2006.

 

That represents one-third of all the retirees with

employer-sponsored drug coverage, according to

documents from the Department of Health and Human

Services.

 

No aspect of the new Medicare law causes more concern

among retirees than the possibility that they might

lose benefits they already have.

 

Democrats are likely to cite the new estimates as

evidence to support their contention that the new law

will prompt some employers to curtail drug coverage

for retirees, forcing them, in some cases, to rely on

Medicare's leaner benefits. Republicans do not want to

see the government supplant employers in providing

drug benefits to retirees.

 

Senior officials at the department have been saying

for weeks that they believe federal subsidies will

induce more employers to continue providing drug

benefits to retirees. Under the new Medicare law, the

government expects to spend $71 billion on subsidies

to employers from 2006 to 2013. To qualify for

assistance, an employer must certify that its retiree

drug benefits are worth at least as much as the

standard Medicare drug benefit.

 

Federal officials have substantial discretion in

deciding how to measure the value of drug benefits.

They said they would use that discretion to encourage

employers to continue providing drug coverage - a goal

ardently favored by retirees, labor unions and members

of Congress from both parties.

 

When Medicare officials held an open-door forum on

June 9, they were deluged with complaints from

Medicare beneficiaries alarmed at the prospect of cuts

in retiree drug coverage.

 

Gale P. Arden, director of the private health

insurance group at the Centers for Medicare and

Medicaid Services, said: " This is a new line of

business for us. We have never been engaged in paying

subsidies to employers or unions before.''

 

In last year's debates, Republicans repeatedly said

the new drug benefits would be completely voluntary.

" Seniors happy with the current Medicare system should

be able to keep their coverage just the way it is,''

Mr. Bush said in his State of the Union Message in

2003.

 

But Representative Pete Stark of California, the

senior Democrat on the Ways and Means Subcommittee on

Health, said it now appeared that the new law would

" force millions of retirees out of comprehensive

retiree drug coverage and into a flawed, inadequate

program.''

 

Still, Republican supporters of the new law and many

employers said it would help stabilize retiree health

benefits. " Rather than worsening the situation, it

works to stop the trend of employers' dropping retiree

coverage,'' said Representative Bill Thomas,

Republican of California, one of the principal

architects of the law.

 

Employers lobbied for the subsidies, saying they would

slow the erosion of retiree health benefits, a trend

that began more than a decade ago.

 

E. Neil Trautwein, assistant vice president of the

National Association of Manufacturers, said Tuesday

that he believed the new law " has the potential to

slow or even reverse the decline in the level of

retiree health coverage provided by employers.''

 

Medicare officials said that 11.5 million

beneficiaries would have retiree drug benefits from

their former employers in the absence of the new

Medicare law.

 

Under the law, according to the documents from the

Department of Health and Human Services, 7.6 million

of those retirees are expected to receive drug

benefits through employer plans subsidized by the

government, and 3.8 million are expected to receive

their primary drug coverage from Medicare. This number

is expected to grow to 4.1 million by 2010.

 

Employers who curtail drug benefits could still try to

help retirees by offering drug coverage to supplement

or complement what Medicare offers. But the government

would not subsidize such assistance.

 

In another sign of Congressional concern about drug

costs, the House voted on Tuesday to allow Americans

to import prescription drugs from other countries,

where prices are often lower. The provision was

included in the annual spending bill for the

Agriculture Department and the Food and Drug

Administration. Republican leaders said it would

probably be dropped from the bill in negotiations with

the Senate. The White House opposed the provision,

saying " it would be virtually impossible'' to

guarantee the safety of imported medicines.

 

Medicare officials plan to propose standards for

employer-sponsored drug benefits later this month.

 

Employers say their decisions about whether to

continue offering benefits to retirees will depend to

a large degree on the federal rules - in particular,

the criteria for deciding whether their retiree drug

benefits are as generous as those provided by

Medicare.

 

The standard Medicare drug benefit will be worth about

$1,200 a year. But its structure - with a large gap in

coverage when the beneficiary must pay all drug costs

- is much different from the type of drug benefit

typically offered by employers.

 

Frank B. McArdle, a health policy expert at Hewitt

Associates, a benefits consulting firm, said: " The

subsidy will be very popular with large employers,

whose No. 1 concern is to minimize disruption to their

retirees. In many cases, employers who take the

subsidy will be able to continue doing just what they

did before.''

 

But employers said that if the federal rules and

requirements proved too burdensome, they would be more

likely to drop their retiree drug coverage.

 

Under the Medicare law, the government will pay a

subsidy equal to 28 percent of drug costs from $250 to

$5,000 a year for any retiree who has

employer-sponsored drug coverage as generous as the

standard Medicare drug benefit. The subsidies will be

tax-free to employers, who can still take tax

deductions for the cost of retiree health benefits.

 

Anthony J. Knettel, senior health policy adviser at

the Erisa Industry Committee, which represents 130 of

the nation's largest corporations, said that " some big

employers have dozens of different retiree health

plans'' - for different lines of business, different

units of the company or employees hired at different

times. It will be difficult to determine whether the

" actuarial value'' of drug benefits under those plans

is equivalent to that of the standard Medicare

benefit, he said.

 

John J. Schubert of PricewaterhouseCoopers, a director

of the American Academy of Actuaries, said, " It will

be a real challenge for the government to write a set

of rules that can be applied to every retiree health

plan because every plan is different.''

 

Copyright 2004 The New York Times Company