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AmWINS: Retiree Drug Plan Sponsors Have Options

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A benefits firm is urging employers that have been getting the Medicare Part D retiree drug subsidy not to panic.

The new Affordable Care Act – the legislative package that includes the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act – requires the government to tax the subsidy.

Congress created the subsidy along with the Medicare Part D prescription drug program, to encourage employers that already offered retiree prescription drug benefits to continue to offer the benefits.

Congress added a Medicare Part D subsidy tax provision when it adopted the ACA, in an effort to offset the cost of other ACA provisions, such as provisions providing a tax break for small groups with relatively low-income workers that offer health coverage.

Instead of collecting the Part D subsidy, an employer can set up an “employer group waiver plan” and collect a “capitation fee” for each retiree that gets drug coverage from the waiver plan, according to AmWINS Group Benefits, Warwick, R.I., a unit of AmWINS Inc., Charlotte, N.C.

The value of the benefit tends to amount to about 35% of the retirees’ prescription costs, AmWINS estimates.

The subsidy the typical employer is getting covers just 20% of the retirees’ drug costs, the firm says.

An employer also can collect the waiver plan capitation fee by using an “800 series employer group waiver plan” and having another company — a “third-party Part D sponsor – run a drug plan for the retirees. An employer that adopts an 800 series plan can get government retiree drug benefits funding without having to go to the trouble of administering a retiree drug plan itself, AmWINS says.