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Medicare Part D Imposes New Notice Requirements and Provides Subsidy Opportunities for Health Plans

August 09, 2005

The new prescription drug benefit provided by Medicare, referred to as Medicare Part D, will become effective January 1, 2006. Medicare Part D includes several programs to encourage employers to continue to provide prescription drug coverage. One such program, the Retiree Drug Subsidy, will reimburse participating plans for a percentage of the cost of providing prescription drug coverage to Medicare-eligible retirees. Medicare Part D also imposes new notice requirements on each plan that offers prescription drug benefits to a Medicare-eligible employee (active or retired) or dependent, whether or not the plan participates in the Retiree Drug Subsidy program. 

Creditable Coverage and the New Notice Requirements
Each plan that offers prescription drug coverage to a Medicare-eligible employee (whether the employee is active or retired) or dependent must notify the employee or dependent and the Centers for Medicare & Medicaid Services by November 15, 2005 whether the coverage is "creditable." The plan also must provide the notice to Medicare-eligible employees and dependents on an annual basis, in certain other situations, and upon request.

This notice is required because an eligible individual who does not enroll in the new Medicare prescription drug benefit during the initial enrollment period and does not maintain creditable coverage for any period of 63 days or longer will be subject to a late enrollment penalty if he or she chooses to enroll later. In a nutshell, coverage is creditable if it is actuarially equivalent to (or better than) the new Medicare drug coverage. The content and appearance of this notice are highly regulated, but model notices are available at:

Plan sponsors can include the notice in other plan mailings or mail it separately.

The Subsidy Application Process
Each plan that wishes to participate in the Retiree Drug Subsidy program must submit an initial application by September 30, 2005. This subsidy is available for retiree coverage, but not for active employee coverage. Plan sponsors must submit applications electronically, and must provide contact and basic plan information, an attestation of actuarial equivalence to the new Medicare drug coverage, electronic funds transfer information, and a list of qualifying covered participants.

  •  Those plans that participate in the subsidy program will be reimbursed, tax free, for 28% of each of their retiree's drug costs between $250 and $5,000 (indexed annually).
  •  The Centers for Medicare & Medicaid Services estimates that participating plans will receive an average of $668 per retiree per year.

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