Medicare Part D Testing

For plan sponsors who currently offer retiree prescription drug coverage, there are several options for dealing with Medicare Part D, which was effective January 1, 2006. The best fit for many is to continue to offer retiree prescription drug coverage and apply for the federal subsidy. This subsidy is tax-free and is available to all plan sponsors who provide prescription drug coverage that is at least actuarially equivalent to the Medicare Part D coverage. There are certain requirements that must be met to qualify for and receive the subsidy, which is equal to 28% of each qualifying retiree’s (or dependent’s) drug costs between $265 and $5,350(for 2007). The Centers for Medicare & Medicaid Services (CMS) estimates that the average subsidy per qualifying retiree will be $500-$600 for 2007.

Plan sponsors must submit to CMS an actuarial attestation that its retiree drug coverage is at least actuarially equivalent to the standard Medicare Part D coverage to be eligible for the subsidy. To determine actuarial equivalence, a plan must pass a Gross Value Test (which looks at the plan of benefits) and a Net Value Test (which takes into account retiree contributions). Bolton Partners has the ability to perform these tests and to certify actuarial equivalence.

Subsidy Timing and Plan Sponsor Requirements

Plan sponsors must apply annually for the subsidy. The application and attestation must be submitted at least 90 days prior to the next plan year. Additionally, plan sponsors must disclose to eligible retirees whether the prescription drug coverage provided under the plan constitutes creditable coverage. A member has creditable coverage if the expected plan payout on average will be at least equal to the expected plan payout under the standard Medicare Part D benefit as described in the Gross Value Test. It is the plan sponsor’s responsibility to provide notices of creditable (or non-creditable) coverage to Medicare beneficiaries.

Services Provided by Bolton Partners

Bolton Partners will perform the gross and net value tests in order to determine eligibility for the subsidy, as well as attest to a plan’s actuarial equivalence. Additionally, we will act as the account manager and cost reporter for those employers who desire assistance with the application process. We have approximately 50 clients who apply for and receive the subsidy. Based on our experience, most employer-sponsored plans offer coverage that is actuarially equivalent to Medicare Part D. Contact Bolton Partners today at PartD@BoltonPartners.com to start the evaluation process or for more information.