Medicare prescription drug improvement and modernization act of 2003
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Medicare Prescription Drug Improvement and Modernization Act of 2003. David Adams, Evangelical Lutheran Church in America Jean C. Hemphill Ballard Spahr Andrews & Ingersoll, LLP November 30, 2004. 2003 Medicare Act. Creates New Medicare Part D for Prescription Drug Coverage

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Medicare Prescription Drug Improvement and Modernization Act of 2003

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Medicare prescription drug improvement and modernization act of 2003

Medicare Prescription Drug Improvement and Modernization Act of 2003

David Adams, Evangelical Lutheran Church in America

Jean C. Hemphill

Ballard Spahr Andrews & Ingersoll, LLP

November 30, 2004


2003 medicare act

2003 Medicare Act

  • Creates New Medicare Part D for Prescription Drug Coverage

  • Effective January 1, 2006

  • Pays Commercial Carriers to Offer Prescription Drug Plans (PDPs)

  • Authorizes Subsidy Payments to Employers that Sponsor Retiree Prescription Drug Benefit Plans


Medicare part d prescription drugs

Medicare Part D – Prescription Drugs

  • Eligible individuals may enroll to receive “qualified prescription drug coverage” under Medicare Part D

    • Unlike Parts A and B, Part D coverage will be provided through private vendor plans

    • Enrollees will be able to choose between at least two plans

    • Private plans (PDPs) will receive a Federal subsidy for a portion of their costs


Medicare part d prescription drugs1

Medicare Part D – Prescription Drugs

  • Who is Eligible?

    • Each individual eligible for Part A or enrolled in Part B

  • Enrollees will pay a monthly premium for Part D coverage

    • $35 month in 2006

    • Special rules for low-income enrollees

  • PDPs will be announced in Fall, 2005


Medicare part d prescription drugs2

Medicare Part D – Prescription Drugs

  • Annual Deductible -- $250 (adjusted after 2006)

  • Cost-Sharing – individual pays 25% of the costs above the annual deductible, up to the initial coverage limit


Medicare part d prescription drugs3

Medicare Part D – Prescription Drugs

  • Initial Coverage Limit – $2,250 (adjusted after 2006)

    • Part D reimburses 75% of costs up to $2,250, subject to the annual deductible

  • The “Donut Hole”

    • Individuals pay 100% of annual costs between $2,250 and $5,100

    • Private vendors may offer supplemental coverage for donut hole expenses


Medicare part d prescription drugs4

Medicare Part D – Prescription Drugs

  • Out-of-Pocket Expense Limit – once individual out-of-pocket expenses reach $3,600 (adjusted after 2006), 95% reimbursement of costs

    • Out-of-pocket expenses include the deductible, individual cost-sharing, costs above the initial coverage limit

    • $250 deductible + $500 cost-sharing + $2,850 in donut hole costs = $3,600


Medicare part d prescription drugs5

Medicare Part D – Prescription Drugs


Employer coordination with part d

Employer Coordination With Part D

  • Two ways for employers to coordinate coverage:

    • Provide primary coverage and receive a Federal subsidy; or

    • Provide secondary coverage (wrap around PDP coverage)


Employer coordination with part d1

Employer Coordination With Part D

  • Subsidy for primary coverage is 28% of the “allowable” annual costs between $250 and $5,000 per retiree

    • Up to $1,330 per retiree (cannot average costs among all retirees)

  • Allowable costs are those costs actually paid on behalf of the retiree

    • Net of discounts and charge backs

    • Excludes administrative costs (other than direct dispensing costs)


Employer coordination with part d2

Employer Coordination With Part D

  • Subsidy Requirements

    • Benefits under retiree plan must be at least actuarially equivalent to Part D Qualified Prescription Drug Coverage

    • Employer must file an annual actuarial certification with Medicare to qualify

    • Employer will be subject to audit of records


Employer coordination with part d3

Employer Coordination With Part D

  • Employers may offer supplemental retiree prescription drug coverage that is secondary to Medicare Part D

    • Supplemental plan will not receive any subsidy

    • Supplemental coverage cannot eliminate donut hole (TROOP Rule)


Employer coordination with part d4

Employer Coordination With Part D

  • Employers may pay PDP or Medicare Advantage premiums for Retirees

  • Employers may coordinate with PDPs for a customized plan


Cms timeline

CMS Timeline

  • February: Final Part D regulations, including eligibility rules for employer subsidy

  • June: PDP vendor applications to CMS

  • September: Deadline to apply for Employer Subsidy for 2006; no indication of when CMS will publish application forms or accept applications.

  • October 15: Regional PDP options announced

  • November 15: Open Enrollment period begins and runs through May 2006.


Church plan issues

Church Plan Issues

  • CBA filed Comment Letter with HHS

    • Many church plans may not qualify for the subsidy because proposed regulations require offset for Retiree contributions in determining eligibility for subsidy

    • No time to align with national PDP for church-wide plan for retirees.

    • Low cost of monthly Part D premium may lead to adverse selection against employer plan


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