Medicare Prescribes Additional Plan Sponsor Responsibilities

Medicare continues to impose new obligations on plan sponsors – even those who don't provide health benefits to retirees. Are you aware of these new plan sponsor duties?

1. Update the Medicare Part D Creditable Coverage Notices

The initial enrollment period for the Medicare Part D prescription drug program expired May 15, 2006. This means that penalties and special enrollment rules may apply to individuals who were eligible for but did not enroll in Part D by May 15. Plan sponsors whose prescription drug plans cover Medicare-eligible individuals need to revise the Medicare Part D notices of creditable coverage to address these issues. The Centers for Medicare and Medicaid Services ("CMS") has issued new model general notices regarding creditable and non-creditable coverage to assist plan sponsors. Plan sponsors should use the new notices on and after May 15. These new model notices are available at http://www.cms.hhs.gov/CreditableCoverage.

Plan sponsors must provide a personalized notice regarding creditable coverage on request. The personalized notice must include the person's name, Social Security or Medicare number, the entity's name and contact information, the dates the person's prescription drug coverage was in effect, and a statement as to whether the coverage was creditable. The personalized notice must be provided even if the general notice was previously given. A plan sponsor may eliminate the general notice and routinely provide personalized notices if it wishes. Note, however, that the notice must be re-distributed each fall. A model personalized notice is available at http://www.cms.hhs.gov/CreditableCoverage.

2. Make sure your administrator agreements cover Medicare Secondary Payer – Plan Sponsor Liability

Medicare takes seriously its obligation to recover amounts it overpaid when a group health plan should have been the primary payor for a medical claim, but Medicare erroneously paid the claim as the primary payor. Recent legislation and court cases have clarified that in situations in which Medicare has overpaid due to erroneously paying as primary, Medicare may seek recovery of the overpayment from the insurer, the third party administrator or the plan sponsor – regardless which party paid the claim or actually is responsible for funding the claims. This means that plan sponsors need to be sure their agreements with their TPA or insurer clearly address which party is ultimately responsible for these overpayments, and that the responsible party will reimburse the party contacted by Medicare, even if (as is frequently the case) the overpayment is not found and requested until after the parties have terminated their relationship.

3. File the extra paperwork needed to ensure you receive your Medicare Part D – Retiree Subsidy

For plan sponsors that have applied for the Part D retiree subsidy, CMS has issued clarifications and imposed new obligations:

CMS now requires all plan sponsors to submit an Authorized Representative Verification Form, certifying that the person listed on the retiree drug subsidy application is authorized to act on behalf of the plan sponsor. Subsidy payments will not be released unless the form is provided. The form is available at http://www.rds.cms.hhs.gov/news/announcements/ar_vetting_letter.htm.

The plan sponsor may apply for the subsidy for COBRA beneficiaries who are eligible for Part D, but who have not elected it, as long as the qualifying event was death or termination of employment. Dependents who are eligible for COBRA due to divorce or other loss of dependent status are not subsidy eligible because the employee is active.

4. Report Medicare Part D Subsidy Amounts as Prescribed by GASB

The Governmental Accounting Standards Board (GASB) will soon require governmental employers and plans to report their responsibility for post-employment health benefits. GASB has recently determined that, for purposes of Statements 43 and 45, plan sponsors who receive the Medicare Part D retiree subsidy should report those subsidy amounts as revenue to the employer or the plan, and not as a reduction in the plan sponsor liability for those post-employment benefits. Government organizations are working hard to try to change this determination to more accurately reflect the subsidy value.

Bonus Fact: New “Part D” coverage figures now available for 2007

The 2007 standard Part D coverage figures have been released. The deductible will increase to $265, the "donut hole" (the gap between what the participant pays and what Medicare pays) will increase from $2,400 to $3,850, and catastrophic coverage will begin at $5,451.25. The retiree subsidy cost threshold will be $265 and the cost limit will be $5,350. This may affect your plan design decisions and creditable coverage analysis.

Please contact your Ice Miller benefits attorney, Mary Beth Braitman, Terry Mumford, Chris Sears, Stephanie Smithey or Linda Rowings for more information on any of these issues.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.

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