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MANAGED CARE September 2000. ©2000 MediMedia USA
MANAGED CARE OUTLOOK

Any way you cut it, employers appear to save if Medicare adopts drug benefit

There has been a gradual decline in employer-sponsored retiree health benefits for much of the last decade; notably, fewer retirees are offered coverage for prescription drugs. A new analysis suggests that a prescription drug benefit in Medicare would reduce employer expense for health coverage — which, in turn, could encourage more employers to offer some form of drug coverage and thus reverse this erosion. The analysis found that under either of the two basic coverage proposals — a direct expansion of Medicare to include prescription benefits or optional drug coverage — employers would save money, regardless of whether they continue to pay for drug coverage, supplement the core Medicare benefit, or drop coverage altogether.

Projected employer savings under a direct expansion of Medicare

Employers who...
Estimated savings*
...retain current level of drug coverage by paying all pharmacy expenses, then take government subsidy for providing coverage
8%
...retain coverage by coordinating benefits (pay supplemental benefits not already covered by Medicare), and pay retiree's Medicare pharmacy (Part D) premium
10%
...retain coverage by coordinating benefits, but require retiree to pay Part D premium
23%
...drop coverage, but pay Part D premiums
67%
...wash hands of all pharmacy responsibility
79%

*Savings per retiree in 2003, when most coverage proposals would begin

Projected employer savings under optional Medicare drug benefit

Employers who...
Estimated savings*
...retain current level of drug coverage by requiring retiree enrollment in optional Medicare pharmacy plan and coordinating benefits (pay supplemental benefits not already covered by Medicare), plus pay retiree's premium for optional pharmacy plan
5%
... retain coverage by requiring retiree enrollment in optional Medicare pharmacy plan and coordinating benefits, but making retiree pay premium for Medicare drug plan
29%
... drop coverage, but pay retirees' premiums for optional pharmacy plan
55%
... wash hands of all pharmacy responsibility
79%
*Savings per retiree in 2003, when most coverage proposals would begin

SOURCE: IMPLICATIONS OF MEDICARE PRESCRIPTION DRUG PROPOSALS FOR EMPLOYERS AND RETIREES, A HEWITT ASSOCIATES ANALYSIS FOR THE KAISER FAMILY FOUNDATION, JULY 2000