With the first year of Medicare Part D under their belts, fewer employers seem enthusiastic about taking the federal subsidy for retiree drug benefits, finds a new study by the International Society of Certified Employee Benefit Specialists, Brookfield, Wis.

Coming at a time of great uncertainty about the future of retiree benefits by major companies, the survey found most employers unsure of what they will do about the subsidy in 2007.

At the beginning of 2006, an earlier survey showed that employers sponsoring post-65 retiree medical programs were committed to maintaining the status quo with Medicare subsidies for the time being. However, 63% had not decided what they will do about Medicare Part D after 2006. The remaining 37% said they had made up their minds.

As for this year, 65% of respondents chose to continue their prescription drug plans and collect the federal subsidy in 2006.

Of those who had decided on a Part D strategy for 2007, 42% said they plan to maintain current benefits and collect the federal subsidy. The remainder indicated that they are considering a variety of alternative approaches–including 12% who said they plan to eliminate all retiree medical coverage or eliminate prescription drug coverage only.

In addition, 15% of companies said they planned to offer a supplemental prescription plan coordinated with Part D plans available in the market or to arrange to offer a specific Part D plan.

The survey also found the following:

o 82% of employers used their Part D subsidies last year solely to reduce their own health care costs, while 8% shared the cost savings with retirees and 6% used the subsidies solely to reduce retiree costs. The remainder used subsidies for other purposes.

o In general, employers liked the response of insurers, pharmacy benefit managers and other vendors that allied to market Part D plans.

o Most employers did not allow their participants to enroll in both a Medicare prescription drug plan (PDP) or a Medicare Advantage plan with prescription drugs and their company-sponsored drug benefit.

o In the future, most respondents show major uncertainties and concerns about prescription drug coverage for their Medicare-eligible population. The survey found 16% thought Part D would be repealed.

The well-known confusion of many beneficiaries about the profusion of plans showed the introduction of Part D did not go entirely smoothly, ISCEBS noted.

“Many retirees struggled with or were unable to use the Web tools made available by the government and insurers,” ISCEBS said in a report on the study. “In addition, most large employer PBMs [pharmacy benefit managers] appeared unprepared and reluctant to provide employer-arranged prescription drug plans.”

Enrollment was below projections after the program’s widely publicized start-up problems. The report points out, however, that enrollment doesn’t end until May 15 and that the Centers for Medicare and Medicaid Services is confident initial snags have been cleared.

About 20 carriers have entered the Medicare Part D market so far, in addition to those already offering Medicare Advantage private fee-for-service plans, which have been authorized since 1997, observes Wayne Wendling, director of research for ISCEBS. These plans are now more financially attractive to insurers as a result of increased federal reimbursements to Medicare Advantage plans under the Medicare Modernization Act.

What remains to be seen is whether the plans will continue to be profitable, Wendling cautions. He notes cutbacks in Medicare significantly eroded profits of companies offering Medicare Advantage plans in the past.

“A carrier has little control over reimbursement rates under the program, because those will be established by the federal government,” Wendling points out. “In the short run, there seems to be an opportunity. We’re not sure of how it will play out in the future because the cost of Medicare is growing.”

Sam Fleet, chief executive of National Employee Benefits Companies Inc., Warwick, R.I., thinks Medicare Part D offers major opportunities. He sees openings for brokers to design medical plans for large employers’ retiree populations that wrap around the Part D program, filling in coverage gaps.

“They need to focus on selling Medicare D plans,” Fleet says of health care plan brokers. “They’re calling employers and offering quotes, but they’re not telling the chief financial officers how a plan can solve their retiree medical benefit plan.”

Wendling points out, however, the retiree health care market is shrinking.

Surveys show only between 10% and 15% of large employers offer retiree health care, he notes. “Indications are it’s going to decline even more,” Wendling adds.

Rather than Medicare changes, he adds, a more pressing issue for many plan sponsors is accounting rule changes being considered by the Financial Accounting Standards Board for reporting post-retirement benefit liabilities on financial statements.

“If employers have to place estimates of retiree liabilities as a note on their balance sheet, there’d be even less willingness to provide these benefits,” Wendling says.

ISCEBS found 30% of employers surveyed believe the proposed changes would have a significant effect on expense volatility if they were adopted.

The survey, conducted in January, drew responses from 169 companies and nonprofit organizations.