Employers Can Get Medicare Subsidies for Lower Benefits

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In theory, those retiree benefits should be at least equal in value to the new Medicare drug benefit. But that will not always be the case, according to Medicare officials, labor unions and specialists in employee benefits.

http://www.nytimes.com/2005/01/31/politics/31drug.html?oref=login

January 31, 2005
Employers Can Get Medicare Subsidies for Lower Benefits
By ROBERT PEAR

ASHINGTON, Jan. 30 - <snip>Accordingly, Congress authorized subsidies for employers who provide a retiree drug benefit at least as generous as Medicare's.

But the value of the standard Medicare benefit, especially the catastrophic coverage, for people with very high drug costs and multiple chronic conditions, is subject to different interpretation.

The Congressional Budget Office estimates that Medicare will spend $71 billion on employer subsidies from 2006 to 2013. The maximum subsidy in 2006 will be $1,330 per retiree. Medicare officials say the average subsidy payment will be $668 per retiree.

<snip>Also at issue are the standards for use of subsidies and the pivotal role that actuaries will play.

Congress defined the standard Medicare drug benefit. But not wanting to dictate the details, lawmakers will let employers and insurers offer different benefits if an actuary certifies that their value is at least equal to that of the standard coverage.

Under the law, Medicare officials said, they have broad discretion to specify how the value of drug benefits will be measured. Medicare is defining "equivalence" in a way that differs from what many retirees had expected, based on a layman's understanding of the term. Dr. McClellan said that in many cases it would not be a close call, because employers had better drug benefits than Medicare, and in any event, he added, retirees would be better off because the subsidies would enable employers to continue providing coverage.