Medicare Prescription Drug, Improvement
and Modernization Act of 2003
 
 
The prescription drug benefit created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”, became effective January 1, 2006.  The Medicare Part D regulations implementing this new prescription drug benefit contain employer notice requirements that have to be met on or before November 15th annually.  To assist you in complying with these regulations on an ongoing basis, we have provided below an overview of the Medicare Part D regulations, a checklist to be considered and implemented by employers, and draft employee/beneficiary notices.  
 
I.          Overview
 
Beginning January 1, 2006, all Medicare eligible individuals became entitled to obtain Medicare prescription drug coverage to be offered by private companies with Medicare approved plans. The minimum coverage provided under the approved plans as of 2009 are as follows:
  • The plan may have a deductible, but it cannot be greater that $295 in 2009.
  • On average, across all Medicare drug benefit enrollees, beneficiaries pay about 25% of prescription drug costs above the deductible and up to $2,700.
  • Medicare does not pay for, and therefore does not require that plans provide, coverage in the coverage gap. In 2009, an individual will enter the coverage gap when the total cost of their prescription drugs--including what they have paid and what has been paid by their Medicare drug plan on their behalf--goes over $2,700. The individual will remain in the coverage gap until what he/she spends out-of-pocket in 2009--excluding what the individual Medicare drug plan has paid on their behalf--reaches $4,350.
  • If their total out-of-pocket costs exceed $4,350 in 2009, they get catastrophic coverage. On average, Medicare and the individual's plan together pay about 95% of the cost of their drugs for the remainder of the year, once he/she exceeds this limit.

 

Open enrollment for Medicare eligible individuals begins on November 15, 2008, and ends on December 31, 2008.   Thereafter, there will be an open enrollment period each year from November 15th through December 31st, with coverage beginning the first of the following year. 
 
Medicare eligible individuals who fail to enroll in a Medicare approved drug plan by December 31st, will not be permitted to enroll again until November 15, of the following year, with coverage effective January 1st.  In addition, such individuals will incur a premium penalty of up to 1% for each month they were eligible to enroll but failed to do so.  This premium penalty continues for the lifetime of coverage. For example, 2009 Part D National Base Beneficiary Premium is $30.36 per month.  You would add the 1% penalty premium to this premium for an additional premium of $0.31 per month.  The new total monthly premium would be $30.67, an increase of $3.72 per year.  You will have to pay this higher premium as long as you keep your Medicare prescription coverage. An important exception to the premium penalty rule is discussed below.
 
The premium penalty does not apply to Medicare eligible employees who are covered by a prescription drug benefit that is at least as good as the Medicare prescription drug benefit.  This is referred to as “creditable” coverage.  Accordingly, prior to providing the required notice to Medicare eligible employees (discussed further below), employers must make the critical determination of whether their existing drug benefit is “creditable” or “non-creditable.” 
 
You are not required to retain an actuary to determine if your prescription drug plan is “creditable.”[1]  Rather, a test has been formulated for employers to make this determination.  An employer sponsored prescription drug benefit is “creditable” only if it satisfies each of the following criteria:
 
1.      It covers both brand-name and generic prescriptions;
2.      It provides reasonable access to retail providers and offers a mail-order option;
3.      It is designed to pay an average of at least 60% of a participant’s drug expenses; and
4.      It satisfies one of the following:
 
  1. For drug benefit plans that are not integrated with a group health/dental plan, the plan has no annual benefit maximum or a maximum annual benefit of at least $25,000, or the plan has an actuarial expectation that it will pay at least $2,000 per Medicare eligible employee in 2009; or
     
  2. For drug benefit plans that are integrated with a group health/dental plan, the integrated health plan must have no more than a $250 deductible per year, no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000, and no less than a $1,000,000 lifetime combined benefit maximum. 
 
Note: Plans with multiple benefit options must apply this test separately for each drug benefit option. 
 
Employers are required to send notices out to all eligible Medicare employees, and their eligible beneficiaries, by November 15th, annually, stating, among other things, whether any prescription drug benefit offered by the employer is “creditable” or “non-creditable.”  The notice requirement applies to plans covering retirees, as well as to plans covering active employees if any employee, or any beneficiary of an employee, is eligible for Medicare Part D.  Accordingly, if you have retiree coverage or any employee over the age of 65, you must send the notice, regardless of whether your plan is primary or secondary to Medicare. Please note that while a single notice may be sent to both an employee and his/her Medicare eligible dependants, the employer must send a separate notice to the spouse or dependent if the employer knows that such spouse/dependent lives at a different address.
 
Recommendation:  Given the inherent difficulty in determining and/or confirming Medicare eligibility of an employee’s spouse or dependents, it is strongly recommended that the appropriate notice be sent to all employees.
 
After the initial notice period, employers are required to provide notice at the following times:
 
  • Prior to an individual’s initial enrollment period for the Medicare prescription drug program;
  • Prior to the annual open enrollment period beginning November 15th each year;
  • Prior to the effective date of coverage for any Medicare eligible employee who enrolls in the employer’s plan;
  • Whenever the employer’s prescription drug benefit changes or ends so that it either becomes creditable or non-creditable; and
  • Upon a Medicare beneficiary’s request.
 

II.         Checklist

  1. Determine whether your prescription drug benefit is “creditable” or “non-creditable.”
  2. Determine which employees and beneficiaries must receive the notice and create an accurate mailing list, to be updated regularly, and at least annually.
  3. Mail required notices prior to November 15, 2008.
  4. Notify Center for Medicare & Medicaid Services (“CMS”) regarding the “creditable” or “non-creditable” status of your prescription drug benefit.  Please note that you can do this at the CMS website at http://www.cms.hhs.gov/creditablecoverage.
  5. Review your plan documents, summary plan descriptions, employee handbooks and other similar materials to determine whether they should be amended/updated.
  6. Implement a plan to track employee Medicare eligibility for future initial eligibility and annual notice requirements.

III.        Form of Notice

 
Two draft notices, following the models suggested by CMS, are attached.  The form of notice you use depends upon whether your current prescription drug benefit is creditable or non-creditable.2  These notices are available in Word document format on the CMS website at http://www.cms.hhs.gov/creditablecoverage.
 
[1]       To encourage employers and unions to offer retiree prescription drug coverage, a Retiree Drug Subsidy Program (“RDS”) was established.  Employers who offer a creditable drug benefit to retirees could have applied for admission to the subsidy program by submitting applications by the deadline of October 31, 2005.  Please note that actuary certification of creditable coverage is required for the RDS.  If admitted to the RDS, employers obtained tax-free subsidy payments equal to 28% of each retiree’s drug costs between $250 and $5,000 (applies only to individuals eligible for, but not enrolled in, the Medicare prescription drug program). 


 2        Any employer who issues Medigap policies (Medicare Supplemental Insurance) to its employees independent of the employer’s health plan will be required to issue a different notice to its employees.  It is suggested that such employers contact their Medigap providers to determine the appropriate form of notice.