The MMA Prescription Drug Benefit

MMA created a prescription drug benefit for beneficiaries, called Medicare  Part D, which became effective January 1, 2006. Sponsors with plans ending in 2007 that  offer prescription drug coverage that is actuarially equivalent to that under  Part D can receive a federal tax-free subsidy equal to 28 percent of the  allowable gross retiree prescription drug costs over $265 (up from $250  for plans ending in 2006) through $5,350 (up from $5,000 for plans ending  in 2006), with a maximum subsidy of $1,423 per beneficiary for each  individual eligible for Part D who is enrolled in the employment-based plan  instead of Part D. Actuarial equivalence, which is attested to by a qualified  actuary, is intended to certify that a retiree health benefit sponsor’s  coverage is at least as generous as the standard Part D coverage. Majority of Sponsors Reported Continuing to Offer Prescription Drug Coverage and Accepting the RDS

According to survey data we reviewed, the majority of surveyed retiree  health benefit sponsors reported that they continued to offer prescription  drug coverage and accepted the RDS for 2006. However, the size of the  reported majority differed across the surveys. Data from CMS show that more than 3,900 sponsors, representing  approximately 7 million retirees, were approved for the RDS for 2006. CMS preliminary data for 2007  showed that the number of sponsors approved for the RDS decreased  somewhat from 2006, to about 3,600 sponsors. Sponsors Considered a Variety of Factors When Selecting MMA Prescription Drug Coverage Options

Public and private sponsors we interviewed reported considering a variety  of factors when selecting MMA prescription drug coverage options. Sponsors cited factors such as whether they could offer the same retiree  health benefits they offered prior to the MMA, their ability to save on  costs, the ease of explaining the option to retirees, the administrative  requirements associated with each option, and the extent of information  available on the options. When making decisions about which, if any, MMA  option to pursue, public sponsors we interviewed were affected by some  factors that private sponsors did not face. For example, sponsors  that offer their own PDP or MA-PD plan must generally meet all CMS  requirements for Part D plans, such as including specific categories of  prescription drugs on their formularies. In contrast, sponsors that select the RDS  option are able to offer the same retiree health benefits they offered prior  to the MMA, as long as a sponsor’s coverage remains at least as generous  as the standard Part D benefit, thus meeting the actuarial equivalence  standard to qualify for the RDS. In the Short Term, Sponsors’ Decisions Regarding MMA Options Resulted in Benefits Remaining Relatively Unchanged, but over the Longer Term the Effect Is Unclear

Sponsors’ decisions regarding the various MMA options appear to have  resulted in the provision of retiree health benefits remaining relatively  unchanged in the short term, although the effect over the longer term on  the provision of health benefits to retirees is unclear. Furthermore, it is unclear to what extent sponsors will continue to select  the same MMA option in the future. To the  extent that sponsors that have accepted the RDS select other MMA  options in subsequent years, sponsors’ provision of retiree health benefits  may change. CMS agreed with the finding that the majority of sponsors reported  continuing to offer prescription drug coverage and accepting the RDS for  2006, with smaller percentages of sponsors reporting selecting other MMA  options. However, both the  2006 Kaiser/Hewitt survey—which reported that 82 percent of surveyed  employers accepted the RDS for 2006—and the 2006 Mercer survey— which reported that 51 percent of surveyed employers accepted the RDS  for 2006—were reporting decisions surveyed employers said they had  already made, not what they planned to do. The draft report  stated that, in general, in order to implement most MMA options other  than the RDS, sponsors would likely have to change the prescription drug  benefits they offer. The report describes both the opinions of  experts who said the MMA may extend the amount of time that sponsors  offer benefits without reducing coverage and those who said the Medicare   Part D benefit may make it more likely that sponsors will stop offering  prescription drug benefits for retirees, and there was not a preponderance  of opinion for either perspective. Specifically, this appendix briefly  describes the methodologies by objective and then discusses (1) surveys  of employment-based health benefits, (2) federal surveys, (3) data from the  Centers for Medicare & Medicaid Services (CMS), and (4) interviews with  sponsors and other experts. Interviews with Sponsors and Experts

To learn more about retiree health benefit trends, the factors that sponsors  considered in selecting the MMA options, the effect that sponsors’  decisions about the MMA options may have on the provision of health  benefits for retirees, and alternative approaches for the provision of  employment-based retiree health coverage, we interviewed 13 of the   15 private and public sector sponsors of employment-based retiree health  benefits that we interviewed for the initial mandated study published in  2005.
Why GAO Did This Study

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) created a prescription drug benefit for beneficiaries, called Medicare Part D, beginning in January 2006. The MMA resulted in options for sponsors of employment-based prescription drug benefits, such as a federal subsidy payment--the retiree drug subsidy (RDS)--when sponsors provide benefits meeting certain MMA requirements to Medicare-eligible retirees. The MMA required GAO to conduct two studies on trends in employment-based retiree health coverage and the MMA options available to sponsors. The first study, Retiree Health Benefits: Options for Employment-Based Prescription Drug Benefits under the Medicare Modernization Act (GAO-05-205), was published February 14, 2005. In this second study, GAO determined which MMA prescription drug coverage options sponsors selected, the factors they considered in selecting these options, and the effect these decisions may have on the provision of employment-based health benefits for retirees. GAO identified options that sponsors selected using data from employer benefit surveys and the Centers for Medicare & Medicaid Services (CMS), the federal agency that administers Medicare. To obtain sponsors' views about the factors they considered and the effects of their decisions, GAO also interviewed private and public sector sponsors and experts.

What GAO Found

According to survey data GAO reviewed, a majority of retiree health benefit sponsors reported that for 2006 they continued to offer prescription drug coverage and accepted the RDS. However, the size of the reported majority differed across the surveys. For example, one survey of private sector sponsors with 1,000 or more employees found that 82 percent of these sponsors accepted the RDS for 2006. Another survey of private and public sponsors found that 51 percent of surveyed sponsors with 500 or more employees accepted the RDS for 2006. Data from CMS showed that more than 3,900 sponsors, representing about 7 million retirees, were approved for the RDS for 2006. According to the surveys GAO reviewed, much smaller percentages of sponsors reported selecting other MMA options for 2006. For 2007, according to one survey, 78 percent of surveyed employers reported that they planned to apply for the RDS for that year. CMS data showed that about 3,600 sponsors were approved for the RDS for 2007. Public and private sponsors GAO interviewed reported considering a variety of factors when selecting MMA prescription drug coverage options, including whether they could offer the same retiree health benefits they offered prior to the MMA and their ability to save on costs. In general, in order to implement most MMA options, sponsors would likely have to change the prescription drug benefits they offer. For example, sponsors that offer their own Medicare Part D plan must generally meet all CMS requirements for Part D plans, such as providing coverage for specific categories of prescription drugs. In contrast, sponsors that select the RDS option can offer the same retiree health benefits they offered prior to the MMA, as long as a sponsor's coverage remains at least actuarially equivalent to the standard Part D benefit. When deciding which, if any, options to pursue, public sponsors were affected by some factors that did not affect private sponsors. In the short term, sponsors' decisions regarding the MMA options appear to have resulted in benefits remaining relatively unchanged, in part because a majority of surveyed sponsors reported that they continued to offer prescription drug benefits and accepted the RDS the first 2 years the RDS was offered. Over the longer term, the effect of sponsors' decisions about the MMA options is unclear. For example, some experts GAO interviewed indicated that the MMA may extend the amount of time that sponsors offer benefits without reducing coverage, while other experts said the availability of the Medicare Part D benefit may make it more likely that sponsors will stop offering prescription drug benefits for retirees. In addition, it is unclear to what extent sponsors will continue to select the same MMA option in the future. To the extent that sponsors that have accepted the RDS select other MMA options, sponsors' provision of retiree health benefits may change. In commenting on a draft of this report, CMS and four experts agreed with the report's findings.