The New Retiree Drug Benefit

What can employers do in place of RDS? EGWP+Wrap is an increasingly attractive option. As the name indicates, the Employer Group Waiver Plan is partnered with a wrap-around secondary plan. This self-insured product with its two integrated parts can be designed to mimic the employer’s current retiree drug benefit, which is particularly helpful for employers who face benefit requirements under collective bargaining agreements.

EGWP+Wrap offers multiple advantages for employers. Recent federal government guidelines have established that, by using this strategy, an employer can harvest the cost savings from both the government-mandated 50% Drug Discount Program and the reinsurance provided by the federal government for catastrophic care. Analysts estimate the value is about 25 percent more than employers have been getting from RDS.

The key is to combine your current plan design with a doughnut hole level program (“the wrap plan”) that provides coverage for brand-name drugs in that doughnut hole when retirees are required to pay for 100 percent of their drug costs. With the wrap firmly in place, the 50% Drug Discount Program reduces the employer’s costs, while the employee still pays his or her normal copays.

The second big savings comes from the ability to participate in the federal catastrophic reinsurance program. All that is required is that the EGWP+Wrap have a calendar-year basis for the plan. Because the amounts paid under the 50% Drug Discount Program count toward the Out-of-Pocket Threshold for catastrophic coverage, more retirees are likely to qualify for catastrophic coverage.

Finally, a third benefit for companies is that EGWP+Wrap lowers their future benefit costs and obligations, which means their current balance sheet accounting for post-retirement benefits is lower.

Making EGWP+Wrap work well

The advantages of EGWP+Wrap are compelling – but many employers may still hesitate because this is a much more complex strategy than they are used to, and one that requires sophisticated administration. However, by partnering with a drug benefit administrator that is well versed in EGWP+Wrap processes, the administrative burden is shifted away from the employer. The right administrator can handle formulary management, federal reporting requirements and the broad range of other tasks required to make health benefits work for both employers and retirees.

The coverage also may require more extensive communication with retirees so they understand the new approach. That, too, can be addressed by selecting a drug benefit administrator that is experienced in call center operations and customer support.

Health benefit advisors and agents do not have to be experts when it comes to EGWP and the EGWP + Wrap. But they do have to recognize an opportunity when they see one, and know who to partner with to take advantage of that opportunity. In the case of the diminishing value of RDS, all they have to do is focus on finding that right escape route for employers – and government actions and guidelines have made EGWP+Wrap a journey worth taking.