Employers move to Employer Group Waiver Plans

As the Patient Protection and Affordable Care Act (PPACA) provisions and guidelines become effective in 2013 and 2014, benefit consultants are advising their Employer-clients to change strategies for their retiree healthcare plans.  One such strategy change is how best to structure the prescription drug plan offering in light of the Retiree Drug Subsidy (RDS) tax break incentive disappearing effective January 2013.

Employers that offer a Part D “CMS-qualified” Rx plan to their retirees, receive a 28% direct payment from the government for those prescription expenditures and a “tax-break” for those return payments (Employers are not required to report these payments as “income”).  The impact effective for 2012 is that now the Federal Government no longer “excludes” the taxability of these return payments;  employers will now be liable for the tax on these federal RDS payments, thus increasing the Rx cost to provide this benefit to their retirees. The impact will be substantial enough that the employer’s cost outweighs the “perceived” benefits of offering this program within the “self-insured” environment for many employers.

Employers are being advised by their consultants, brokers and actuaries to move to a different structure and delievery verhicle based on their financial position and available market alternatives.  There are three insurace options that are avaialble:

Direct-contract Employer Group Waiver Plan (EGWP) – self-insured platform in which employer contracts directly with Center for Medicare and Medicaid Services (CMS), receiving payments direcltly from CMS.

800 Series EGWP – employer contracts with a Third Party (PDP) that already has a presecription drug plan contract with CMS (employer rents the PDP’s network) and federal payments go to the PDP, alleviating the employer from the administrative costs of setting-up a EGWP program.

Transitioning Retirees to the Individual Part D market – this option affords the employer to terminate the existing Group Part D employer Rx plan, and transition its retirees to enroll in a community-based Part D Plan for individuals based on their residency, offered by the many Insuracnce Carriers in that region.

The advantage of the EGWPs is that custom benefits can continue be offered to the retiree-group as -a-whole.  Health and Welfare Funds with “contractual” benefits is served best by an EGWP, as well as Employers with a more paternal objective of still ”honoring a fiscal responsibility” to its retirees who were a criticial part of building the Company while employed.  It truly becomes a decision that employers must weigh financial impacts versus a moral obligation.  Of course, bargained  / contractual benefits are also a legal ramification that must be addressed in this equation when applicable.

The EGWPs are often viewed as an interim step, moving from self-funding through the RDS to one of the EGWP vehicles.  The 800 Series is the most chosen for the obvious reasons of ease of conversion, reduced administrative set-up, and much shorter implementation window.   The PDPs are already operating efficiently in the marketplace, so piggy-backing on their program is a much better decision that starting-from-scratch for an employer.

The third option of transitioning retirees to an Individual Part D plan is naturally ”easiest” for the employer, but may be challenging for some retirees.  None of us particulary like change, so the retirees being asked to move from an employer’s program that he or she probably has been enrolled in for may years (starting as an employee), may not be as comfortable for some as others.  However, with the wide choices available in most markets, most would continue with the same pharmacy, only a change in copays and some drugs would have to be tolerated.

For the employer, transitioning to an Individual Policy Part D for its retirees can be made very affordable for the Company’s bottom-line with either “fixing” a dollar amount per retiree (defined contribution) or phasing-in a complete “walk-away” by the employer to a stepped-down fixed-contribution over time.  Again, each employer would weigh its financial strength and moral obligation to its reitrees in setting-up this transitional program.

About Vince C

Vincent Cerilli has been directly involved with the healthcare industry for over 25 years. For the past 10 years he has focused on the senior market in an advisory and consulting role to employers and seniors regarding their Medicare coverage and supporting healthcare plan needs.
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