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GAO: Employers Still Pondering Retiree Drug Options

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Many companies have not yet decided what they will do about the new Medicare prescription benefit program.[@@]

A team led by Kathryn Allen, a health insurance specialist at the U.S. Government Accountability Office, has published data supporting that conclusion in a study conducted for several congressional committees.

When Congress passed the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which is set to create the Medicare Part D prescription drug program, it included a subsidy provision for existing employer-sponsored retiree drug programs, to encourage employers to keep the programs rather than dumping retirees into the new Medicare Part D drug program. Employers will get the subsidy only if retirees stay out of the Part D program.

But program rules are complicated, understanding the effects of choices on retiree plan costs is difficult, and the result is that only 2 of 12 private employers GAO officials surveyed have decided to choose the subsidy option for all of their retirees, Allen writes in a report on the survey findings.

Another 2 employers have decided against choosing the Medicare subsidy, 3 have decided to choose the subsidy for some retirees, and 5 continue to consider the subsidy option, Allen writes.

Allen’s team also looked at 50 financial reports that publicly traded companies had filed by November 2004.

So far, only 27 of the 39 employers that report offering retiree health benefits have addressed the effect of the new Medicare drug program on their obligations. Although 13 of the employers say they will choose the subsidy option for at least some retirees, 14 have not made their views clear, Allen writes.

Allen also confirms conventional wisdom that the new drug subsidy will do little to encourage employers to set up new retiree health benefits or retiree drug benefits programs.

“While there may be isolated individual employers that might begin to provide retiree health benefits or prescription drug coverage supplementing the benefits established by the [new law], they would likely to be the exception rather than the rule,” Allen writes.

The GAO report is on the Web at


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