What Multiemployer Plan Trustees Need to Know About Medicare Part D

IS YOUR FUND ENTITLED TO A SUBSIDY? The Deadline Has Been Extended to October 31, 2005.

Does your fund offer prescription drug coverage to retirees? If so, it may be entitled to a subsidy from the federal government.

Under the Medicare Modernization Act of 2003, Congress authorized a tax-free subsidy from the federal government for group health plan sponsors who continue to provide retiree drug coverage after the new "Medicare Part D" prescription drug benefit takes effect. The subsidy equals 28% of the cost (within certain limits) of providing drug coverage to individuals who are eligible for Medicare Part D, but who instead remain covered by the group health plan. The average subsidy payment per retiree is expected to be approximately $660. The deadline has been extended to October 31, 2005 to submit your application to the Centers for Medicare and Medicaid Services (CMS).

Who gets to keep the subsidy?

The subsidy is provided to the Plan Sponsor. In a multiemployer fund with more than one contributing employer, the Plan Sponsor is the Board of Trustees. Therefore, the subsidy will go into the trust fund, providing trustees with a unique opportunity to reduce prescription drug costs without cutting benefits.

What is involved to apply for the subsidy?

The subsidy application cannot be completed in one day. In fact, trustees must begin gathering data immediately if they expect to have this process completed by the application deadline of October 31, 2005. Applying for the subsidy involves a sophisticated determination of whether the plan's coverage is at least as good as the new Medicare Part D coverage. An actuary must certify that a fund's coverage is creditable before the fund can apply for the subsidy. Most prescription drug plans provide benefits that are better than Part D. According to the information gathered by CMS, if a plan sponsor pays at least 75% of the premium for prescription drug coverage, the plan most likely will be eligible for the subsidy.

What should trustees do to obtain the subsidy?

Funds that offer retiree drug coverage should consider the following action items:

· Determine whether your fund's drug coverage is "creditable." (Remember, this process will require an actuary.)

· If so, complete and submit the subsidy application by October 31, 2005.

· If you are applying for the subsidy, determine whether members who enroll in Part D will still be eligible to participate in the fund's drug coverage and amend your plan documents accordingly.

· If your fund will not apply for the subsidy, consider other options for drug coverage such as drug coverage that simply supplements or "wraps around" Part D coverage (both options would essentially force retirees to enroll in Part D) and amend your plan accordingly.

· Consider the impact of the subsidy and new plan design decision on FAS 106 reporting requirements.

If you would like assistance with your fund's Medicare Part D compliance, including your creditable coverage certification, subsidy application, or Medicare Part D notice, please contact Stephanie Smithey or Linda Rowings.

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.