Medicare's Part D as Plan B

After a two-year wait, on Tuesday more than 40 million Americans eligible for Medicare can start to sign up for Medicare Part D, the program's voluntary prescription drug benefit. And by Tuesday, a quarter of those people, some 10 million retired American workers, will find out something more specific: whether their former employers will continue to pay for their prescription drug benefits in 2006.

Tuesday is the deadline for employers to say "yes," "no" or, perhaps, "maybe."

This group of retirees includes my wife, Sara, and me. In our case, we were waiting for a letter from General Electric Co., where Sara worked for 23 years. When she retired, she signed up for a GE retiree prescription drug plan, which pays 70 to 85 percent of our drug costs. We get our medications by mail and pay $25 for a 90-day supply. It's a benefit we did not want to lose.

We began to worry about whether GE would continue its drug benefit when Congress voted in 2003 to let Medicare pay for prescription drugs, which opened the door for some companies to drop their retiree coverage.

The new voluntary drug benefit begins Jan. 1 and is expected to be of financial help to many seniors who have no drug coverage.

Part D allows people on Medicare to get their drugs in one of two ways: by buying an individual drug policy or by signing up with a Medicare Advantage managed care plan. The new drug plans are being offered by private health insurance companies.

Retirees who have approved drug coverage from former employers will not need to buy a Part D plan. So Sara and I were relieved when we received a "yes" letter from GE, telling us that our drug coverage would continue without change. One of the reasons for our concern was that our out-of-pocket drug expenses under the GE plan last year were $1,685. But if we had been in a standard Medicare Part D plan, our expenses would have been about $5,000. We did not want to go there. The new Medicare drug benefit, expected to cost more than $724 billion over 10 years, is being regulated by the Centers for Medicare and Medicaid Services (CMS).

To encourage employers to retain their retiree prescription coverage, Congress offered them a 28 percent tax-free subsidy of the cost of that coverage. But the question was: Would employers keep their drug plans and take the subsidy, or would they dump their plans to save money, knowing that retirees could now get prescription coverage from Medicare Part D?

The speculation seemed reasonable. The number of corporate employers offering retiree health benefits has declined steadily for 15 years. Part D could have provided an escape hatch for employers who wanted out.

In addition, employers had to jump through some difficult regulatory hoops to prove to CMS that their plans were as good as the standard Part D drug plan. Developing the proof turned out to be a costly, time-consuming process that required employers to hire a small army of actuaries and consultants.

Employers who passed the CMS tests were able to claim they had "creditable coverage," a requirement for getting the 28 percent subsidy.

When Sara and I got our letter from GE, it said: