Prior to 2006, the primary unmet health care need for retirees was coverage of prescription drugs. Up to this point, Medicare provided retirees with coverage for most other acute care services, including inpatient hospital, physician and outpatient hospital services.
Starting in 2006, the newly introduced component of Medicare (Part D) covers part of the retiree’s prescription drug costs, too.
That leaves one major hole in the health care safety net for elderly Americans: long term care coverage.
As reported in National Underwriter (Oct. 3, 2005), the average annual nursing home cost has escalated to $74,095. At the same time, Milliman Inc. research shows, only four out of 10,000 seniors experience annual drug costs exceeding that amount (an average annual drug cost per senior being $2,171.36). Given the growing population of aging baby boomers, escalating nursing home costs and rising average life expectancy, the financial situation of the elderly population is extremely challenging.
The introduction of Medicare Part D creates an opportunity to redirect resources from prescription drug costs to much-needed LTC coverage.
Employers have several options available for using Part D. For instance, employers may receive a direct subsidy from the government while maintaining their current drug coverage. According to the Centers for Medicare and Medicaid Services, the estimated value of the tax deductible subsidy is $668 per beneficiary. Alternatively, employers may wish to eliminate their current coverage and pay some or all of the retirees’ Part D premium.