In the Age of Part D
By: Patricia Barry; Source: AARP Bulletin Date Posted: 2006-09-13 13:32:00-04:00
Retirees lucky enough to have prescription drug coverage from their former employers or unions—about a third of all retirees—began worrying even before the Medicare drug law was passed in 2003. Would the new Medicare benefit encourage their employers to cancel their coverage?
For most people that hasn't happened. Surveys show that fewer than 10 percent of large businesses dropped drug coverage, about 80 percent continued it, and the remainder offered to "wrap around" the benefit by paying part of the costs for retirees who transferred to a Medicare plan.
To find out how individuals were faring, the AARP Bulletin invited readers to describe how their drug coverage had changed since the Medicare benefit began in January. Were they better or worse off? More than 800 people answered. Such "surveys" are not scientific and tend to draw more replies from the disappointed than the satisfied. Even so, the responses chronicle a broad range of experiences, at a time when the advent of Part D is coinciding with drastic changes in work-based health and drug coverage.
Those retirees whose drug benefits were canceled or became more expensive this year often blamed Part D. But experts say that such changes, which have accelerated over the past 15 years, are due to runaway inflation in health care costs and that in general Part D has lessened their impact.
With work-based coverage already dwindling, "I think we're going to see the real benefit of Part D," says Frank McArdle, research manager of Hewitt Associates, a leading benefits consulting group. "Which is to put a safety net under retirees so that they can get coverage, no matter what happens in the employer setting."
Those who could keep coverage
Under the new law, Congress gave large subsidies to employers who continued to offer their retirees "creditable" drug coverage—usually defined as "at least as good as Medicare's." Consequently, millions of retirees expected their out-of-pocket costs to remain the same or even go down.
And in some cases they did. One Bulletin reader in San Clemente, Calif., says that his former employer still gives the same generous coverage he was promised when he retired in 1990. "My monthly premiums are zero, my annual deductible is zero [and] I have no copayment for either generic or brand-name drugs," he says.
The majority of our respondents, however, reported a jump in premiums and copays in 2006, ranging from small to very large.
Joseph Miller of Cañon City, Colo., paid premiums of $372 a month in 2005 for combined health and drug coverage for himself and his wife. In 2006 the cost of the same benefits doubled to $743 a month—$297 for medical care plus $446 for drug coverage.
Rising costs can also affect retirees who are not yet Medicare beneficiaries. Jim Vecchiola, 62, of Voorhees, N.J., says his copays soared. He paid about $800 out of pocket for his five medicines last year. This year, he reckons, they'll cost at least $2,400.
In certain cases, premiums rose so high so fast that some retirees say they had to drop their employer plans and enroll in Medicare Part D.
Joseph Manion of Mukilteo, Wash., is one of several retirees from a major U.S. company who say that drug premiums for themselves and their spouses rose from zero in 2005 to $281 a month in 2006 for the same coverage. The company, he believes, "priced us out of using its benefit, a benefit I earned with 31 years of faithful service."
Thomas Gibson of Mesquite, Texas, reported similar changes at his company. His combined health and drug coverage (for himself alone) cost $184 a month last year. For 2006 it was split into two premiums—$149 for health and $226 for drugs. "They didn't require me to join Medicare Part D," he says. "But they forced me to look for Part D by raising the premiums to an absurd amount each month."
Each man dropped his retiree drug plan, joined a Medicare plan and is now saving money. Manion and his wife each pay $24.89 a month for their plans, while Gibson pays $28.25, which he figures is about $2,700 a year less than he would have paid for premiums in his company plan. But both Medicare plans have a coverage gap—the "doughnut hole" where the enrollee pays the full price—that didn't exist in their retiree benefits.
Many Bulletin respondents expressed not only anger at escalating costs but bafflement. They'd been told their company drug coverage was being continued because it was "equal to or better than" Medicare's. So why, they wonder, are they paying more?
The answer, analysts say, is that "creditable" drug coverage does not mean that an individual will personally get a better deal than under Medicare, as many people think. It means that the retiree plan "must show overall that the employer is contributing at least as much [money] as Medicare would be for all the people in the plan," says McArdle of Hewitt.
Any retiree drug plan that is deemed "creditable" is eligible for a federal subsidy. But the law doesn't specify how that money is to be used. "The plan sponsor can share some or all of the subsidy with the retirees," McArdle says, "but that's by no means a requirement."
Although retirees are largely unaware of it, there's a separate reason why their premiums and other costs can suddenly escalate. Soaring inflation in health care and drug costs in recent years has caused many employers and unions to set caps on the overall amount they will spend on health benefits. "And once they hit that cap, 100 percent of any increases in cost will be paid by the retirees, mainly through higher premiums, each and every year," says Dallas Salisbury, president of the Employee Benefit Research Institute (EBRI) in Washington.
No matter how much health care any individual consumes, he adds, "every single retiree in that plan will get a bill."
Those who lost coverage
Not surprisingly, people who lost their employer drug coverage when Medicare Part D started were the most bitter—especially those retirees who believe they were promised good benefits at low cost for life, or who took early retirement for lower pensions on the basis of such promises. Typical comments include: "I feel angry and betrayed" and "We were thrown to the wolves."
For some in this group, premiums aren't generally the big issue. Of more concern are higher copays under their new Medicare plans and situations they'd never encountered before, such as the doughnut hole, not receiving coverage for all their medications and having to get authorization for certain drugs.
In some cases, the blow was harsher. Certain companies canceled not only drug benefits on Jan. 1 but medical coverage, too. Since 1992 Carl and Alice Asch's retiree plan had paid for most of their health and drug costs. Replacing that coverage with a medigap policy and a Part D plan, says Asch, of Ridgefield, Wash., "has effectively cut our retirement income over 20 percent." The union-negotiated contract is now the subject of two class-action lawsuits.
William Gonyou of Gaines, Mich., had both his medical and prescription coverage canceled on Jan. 1. His wife, who is not yet 65, is still covered on his plan, but even her premiums rose from $19.03 to $100.50 a month.
Some retirees reported that their companies specified which Part D plan they had to join if they wanted to keep their medical coverage. Some said the designated plans are more expensive than other Part D plans they could have bought for themselves. But they had no choice—especially if they needed company coverage for a spouse not yet eligible for Medicare.
About 10 percent of large companies, while no longer providing drug coverage, have offered some help toward Part D costs, paying all or part of the premiums or costs in the doughnut hole. Some offer annual lump sums as a subsidy, although these are subject to tax.
To retirees who've been dumped, it's no comfort to know they are part of a nationwide trend of rapidly eroding work-based health benefits. "There's no way to put a silver lining on it," says Salisbury of EBRI. "The rug has been pulled out from under them."
EBRI has estimated that, as Medicare now covers only about half of retiree health expenses, a couple age 65 today can expect to spend $295,000 out of pocket on premiums and medical care (but not long-term care) should they live a normal life span (82 for men and 85 for women). The suggestion that people should plan during their working lives for such an outlay, Salisbury agrees, is futile for those already retired and on fixed incomes.
Still, other retirees have found a silver lining. Several told the Bulletin they were glad they were dumped because Part D, for them, turned out better.
Robert Lauer of North Port, Fla., enrolled in a Medicare managed care plan (available only in certain counties of Florida) that charges no premiums or copays for the generics and "preferred" brand-name drugs that he takes. The plan also refunds nearly all the Medicare Part B premiums for him and his wife. "I still can't believe it," he says. "It's saving us $4,000 a year."
Lauer had worked 40 years for one company, as his father had before him. So before he canceled his drug coverage, he says, "the company had taken care of me for my entire 75 years." Then the company told him that if he dropped its medical coverage as well, it would send him a $25 dinner voucher.
"As we left the restaurant," he says, "I told my wife: 'I feel like we just cut the last apron string.' "
Additional Related Links
Part D Coverage Gap Alert (September 2006)
Medicare Part D: In and Out of the Doughnut Hole (June 2006)
New Q&A on Rx Plans (March 2006)
New "Extra Help" Income Limits (February 2006)
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