Read the Fine Print Before Signing Up for Medicare's Drug Benefit

Beyond the complexity of the new Medicare prescription drug benefit, health care experts have now identified another potential booby trap.

Although company-provided medical insurance has been declining -- a fact much reported in the press -- millions of retirees still have it, including drug coverage.

But some 60 percent of large employers are now saying that if a retiree 65 or older signs up for Medicare Part D, they will terminate that person's drug coverage -- and in many cases all of his health care coverage. The findings are from a study by the Kaiser Family Foundation and Hewitt Associates, a big benefits consulting firm.

Specifically, the survey of 300 companies with 1,000 or more employees found that of the companies continuing to provide prescription drug coverage (and taking a government subsidy that will be provided by Medicare), 31 percent said retirees who sign up for Part D will lose the company's drug coverage, and 29 percent said such retirees will lose all retiree medical coverage from the company.

Frank McArdle of Hewitt said there is "a combination of reasons" behind the employers' position. Some point to the administrative difficulties involved in having some workers on their plan -- for which they receive a government subsidy based on the number of retirees covered -- and some in the Medicare plan. Others don't want to lose any of the subsidy; still others view their plans as more generous than Medicare's and want to make sure their retirees stay in it.

Of course, one might assume that employees who have prescription drug coverage through their employer that is as good as or better than Medicare's would not sign up for the government program. And employers are supposed to have sent them a letter, called a "creditable coverage certificate," stating that the employer's plan is indeed as good as or better than Medicare.

(Retirees who get these certificates should hang on to them. Besides telling you your plan is as good as or better than Medicare's, the certificates will enable you to avoid a late-enrollment penalty if you sign up for Medicare Part D later on. There are also certificates of "non-creditable" coverage, which mean you could be penalized if you sign up for Part D in the future; if you get one of these you probably should sign up, but it's a good idea to check with your employer's benefits office to make sure you won't lose other coverage.)

Further, employers with these "creditable" plans are required to submit a list of their participants to Medicare, which in turn supplies it to the Medicare prescription drug plans. Thus, if a participant in such a plan turns up at a Medicare drug company, the company is supposed to notify the employer before allowing the retiree to sign up. Presumably the employer will urge the retiree not to sign up.

However, the employer cannot bar the retiree from signing up, and experts worry that despite the safeguards, "some retirees -- faced with a fairly significant change in their Medicare options -- may sign up for a Medicare prescription drug plan without realizing the potential consequences in terms of forfeiting their employer-sponsored benefits," the report said.

Some low-income retirees may face an even tougher situation.

Known as "dual eligibles," these people qualify for both Medicare and the federal-state health-insurance program for the poor, Medicaid. Some 6 million such people have been automatically enrolled in the Medicare drug plan.

"No one's quite sure how many of them have employer-sponsored coverage," McArdle said. It's probably a minority, he added, but for them all the safeguards don't apply.