August 16, 2005--Employers face two approaching deadlines created by the
Medicare Modernization Act of 2003 that could mitigate their cost of providing employees'
prescription drug benefits.
Applications for federal subsidies toward providing prescription drug benefits to
retirees or other Medicare beneficiaries are due by September 30, the first deadline. The
second, November 15, requires employers to tell their Medicare-eligible workers whether
their current health plans are more or less valuable, in actuarial terms, than the Medicare
Prescription Drug Plan, also known as Part D.
The tax-free subsidy could save employers a substantial sum, depending on the number of
workers they have. The subsidy amounts to 28% of actual annual drug expenses incurred by
beneficiaries, which the Center for Medicare and Medicaid Services (CMS) of the U.S.
Department of Health and Human Services estimates at $668 per beneficiary, or about $891 of
taxable income for employers facing a marginal tax rate of 25% and $1,028 for those facing
a rate of 35%.
However, the actuary report required to qualify for the subsidies may cost from $4,000
to $5,000, and operational costs may be another $10,000 to $15,000, according to Edwin
Hustead, senior vice-president of The Hay Group, a human resources consultancy, who was
quoted in an article by the Society for Human Resources Management (SHRM). These costs mean
that applying for the subsidies would only be worth it for companies with 40 or more
qualified beneficiaries, he said.
By November 15, employers must inform those workers who qualify for Part D whether their
coverage under a company's plan is "creditable," which means that the plan has an actuarial
value equivalent to the minimum coverage required by any Medicare-qualified prescription
Giving workers notice that the employer-provided plans are 'creditable' is important,
reported the SHRM, as it is a pre-condition to receiving the federal subsidy. Further, if
workers, not realizing that their current plans were providing equivalent or greater value,
enrolled for other Medicare-qualified plans, that would also prevent the employer from
receiving the subsidy.
The CMS has an online subsidy application tool and allows employers to extend the
September 30 deadline by an additional 30 days.