Part D decisions: like other employers, many states are collecting a new federal subsidy for maintaining retiree drug coverage--but for many, that's not their "final answer.".

• Author: Burton, Rachel

Although most of the attention surrounding Medicare Part D has focused on states' efforts to help low-income seniors make the transition to new drug coverage options, Part D has raised another issue for states. Just like other employers, state officials have had to decide how to modify benefits for their 5.6 million retirees in face of new Part D options.

Part D makes drug coverage cheaper to provide for many states, because they are cashing in on a new federal subsidy available to employers who provide drug coverage for retirees. Other states not spending enough to qualify for the subsidy are recommending Part D drug plans to their retirees, while a couple have dropped their coverage and urged retirees to enroll in Part D.

The most popular option so far has been to maintain existing retiree drug coverage and apply for the federal subsidy, which is available to employers who continue to offer coverage equal to or better than the Part D "standard benefit." Alaska, California, Connecticut, Maine, Maryland, Massachusetts, New Jersey, Ohio, Vermont and Washington have applied for the subsidy, which is worth 28 percent of the employer's share of drug costs between $250 and $5,000.

The Centers for Medicare and Medicaid Services (CMS) estimates that on average, the subsidy is worth $611 per person in 2006. Total state subsidies vary based on the number of beneficiaries. New Jersey, for example, which is in the upper range, anticipates getting back $78 million, because its plan also covers retired local government employees. Meanwhile, Maryland is expecting a more modest $17 million.

Maintaining existing benefits allows states to adopt a wait-and-see approach to monitor the drug coverage landscape before they consider bolder changes to their retiree drug programs. States can modify health and drug coverage offerings each year, as long as the timing of the change coincides with Part D's annual open enrollment period between Nov. 15 and Dec. 31.

LEGISLATIVE ACTION

Legislators' roles in addressing Part D have been as varied as the policies adopted. In most states, lawmakers have let benefit administrators handle Part D decisions, but a few legislatures have passed laws suggesting or requiring certain courses of action.

Legislators in several states were involved in deciding to maintain their existing retiree drug coverage and collect the federal subsidy. State retirees, like all retirees across the nation, had the option of enrolling in a prescription...