Seniors Should Consider Company Insurance Options Before Jumping to Medicare Drug Plan

Oct. 5, 2005 – Medicare eligible senior citizens still in the workforce or covered in retirement by a company or union health plan with prescription drug benefits should not enroll in the Medicare Part D drug program until they understand the options available through their company insurance, since Medicare is offering subsidy payments to companies that may cause them to revise their plans. This suggestion is from Watson Wyatt Worldwide, a leading “human capital” consulting firm in their report on trends in health care benefit costs issued as annual enrollment nears for company insurance.

About Medicare Subsidy

For retiree plans that offer coverage at least as generous as the standard Medicare prescription drug benefit, Medicare will make a tax-free payment to the plan sponsor. In 2006, this payment will equal to 28 percent of each retiree’s allowable costs that fall between $250 and $5,000. (Employers with tax liabilities can continue to deduct the expenses for their retiree drug coverage, but the Medicare retiree drug subsidy payment is not subject to taxation.) Retirees subsidized in this way remain enrolled in their employer or union plan and would not join a Medicare Part D plan.

By remaining the primary insurer, each qualified employer or union plan retains complete flexibility in structuring its retiree benefits.

The CMS Office of the Actuary (OACT) estimates that Medicare payments for the retiree drug subsidy will average $611 per beneficiary in 2006. In addition, employers with corporate tax liability will also benefit from the exclusion of this payment from taxable income. For employers with a marginal tax rate of 35%, the tax exclusion makes the Medicare payment equivalent to a taxable payment of $940.

U.S. workers will see higher health care benefit costs along with new plan designs and choices in the forthcoming open enrollment season, according to benefits consultants at Watson Wyatt Worldwide.

"With many employers once again passing rising health care costs to their workers, open enrollment season has become more than simply a process of checking off which benefits employees would like for the following year," said Tom Billet, a senior consultant with Watson Wyatt. "We are seeing a rapid acceleration in many of the changes that employers started to make to their plans last year. Employees will need to carefully evaluate each of the options they have to ensure they are making the best decisions for themselves and their families."

Here are six major trends that benefits experts at Watson Wyatt, which consults with large employers on their health care benefit and open enrollment programs, have identified for this year's season.

• Hello, co-insurance and deductibles; goodbye, co-pays. A growing number of employers are designing their health benefit plans to emphasize first-dollar cost sharing. For many employees, that means they will no longer pay $15-$25 in co-payments when they visit their doctor or hospital. Instead, employees will be responsible for medical expenses up to a deductible level, at which point the employer will cover generally 80 percent of the costs with the employee responsible for the balance.

   • New cost arrangements for prescription drug benefits. Many employers are scrapping prescription drug benefit plans that require co-payments for generic and brand-name drugs and replacing them with plans that
     require co-insurance and deductibles. Employers are also continuing to
     encourage workers to use generic drugs when available by providing
     better co-insurance provisions for generics. Most employers who are
     keeping their co-payment arrangements are raising co-pays by about $5
     for brand-name drugs while keeping co-pays for generic drugs at the
     same rate. And more employers are implementing mandatory 90-day mail
     order programs for maintenance drugs.

   • High-deductible/personal health care accounts growing. As employers
     increasingly involve workers in decision-making, more of them are
     adding high-deductible health plans as well as personal account plans,
     including Health Savings Accounts (HSAs) and Health Reimbursement
     Accounts (HRAs). Larger employers are generally offering these accounts
     as an option to a traditional health benefits plan. Smaller employers
     who are implementing personal accounts are generally offering them as
     the only option. HSAs allow both workers and employers to set aside
     funds for out-of-pocket medical expenses, while only employers are
     permitted to fund HRAs.

   • More health risk assessments, financial incentives. Many employers are
     offering workers financial incentives to complete a health risk
     assessment and participate in wellness programs. Recognizing the need
     to help workers focus on ways to promote a healthy lifestyle, employers
     are hoping to encourage them to participate in disease management
     programs aimed at better managing chronic illnesses.

   • Greater access to online, decision-making tools. As employers embrace
     consumer-driven health plans and make workers more responsible for
     their health care decisions, more companies are providing employees
     with tools to help them make informed choices. These tools can help
     workers in virtually all aspects of the enrollment process. Some tools
     show the dollar impact of the various health plan options; others help
     employees determine how much to contribute to a flexible spending
     account, check the status of claims, track down information on medical
     specialists, create personal health records and find web sites with
     health information on specific diseases and wellness topics.

   • New drug choices for older workers, retirees. With the new Medicare
     prescription program set to begin in 2006, Medicare-eligible retirees
     will be flooded with information about the program at the same time
     that open enrollment is occurring. Retirees should not enroll in
     Medicare D until they understand the options available through their
     former employer and other available options. Some employers may change
     their program options depending on whether they take a federal subsidy
     available through the new program.

About Watson Wyatt Worldwide

Watson Wyatt Worldwide (NYSE:WW) is a global human capital and financial management consulting firm. The firm specializes in employee benefits, human capital strategies, technology solutions, and insurance and financial services and has 6,000 associates in 32 countries.

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