February 28, 2003

"Employers, Retirees, & Medicare"

The Alliance to Improve Medicare (AIM) and the Progressive Policy Institute (PPI) hosted a Congressional staff briefing to examine the potential impact of Medicare reform and prescription drug proposals on employer-provided retiree health benefits. Speakers included Monica Tencate, President, Health Policy Source, Inc., Edward J. Kaleta, Manager, Government Affairs, Caterpillar and Chair, Employers Coalition on Medicare, and Annette Guarisco, Deputy Director, Washington Office, General Motors Co.

Ms. Tencate noted that any Medicare prescription drug benefit program will likely "have a profound impact" on existing employer-provided retiree health care coverage.  She reported that an estimated 30% of Medicare beneficiaries currently participate in retiree health plans, the most common form of supplemental Medicare coverage.  Ms. Tencate stated that coordination of employer-provided benefits with Medicare under a new benefit structure will determine whether many employers continue to provide such coverage.  Employer options would be to either "wrap around" or provide coverage supplemental to the new Medicare benefit or to drop retiree benefits altogether.

Some earlier Medicare drug benefit proposals offered a combination of reinsurance and/or subsidies to employers, according to Ms. Tencate. The issue of employer-provided coverage and coordination with a new benefit, however, has not been a focal point of the Medicare debate.  Ms. Tencate noted that neither employers nor legislators have spent a lot of time on the issue.  She stated that lawmakers should consider offering different incentives to entice different types of employers to continue to offer retiree coverage.  A variety of structural, administrative, and subsidy and/or reimbursement options should be reviewed for inclusion in new Medicare reform legislation in the 108^{th Congress.}

Finally, Ms. Tencate noted that there will be a substitution of public dollars for private dollars under a new Medicare benefit because Medicare will become the primary payor for any new drug benefit or comprehensive benefit package. She concluded by stating that Congress must consider how to encourage employers to continue offering some level of coverage, ensure Medicare beneficiaries still have comprehensive benefits, and minimize the amount of public dollar substitution.

Mr. Kaleta agreed with Ms. Tencate that employers have not previously been actively engaged in the Medicare debate, especially regarding coordination of retiree benefit plans. He noted that rising health care premiums and costs as well as the projected increase in the Medicare population over the next 20 years make this an important issue for employers and makes employers' role an important component of the Medicare debate.

Mr. Kaleta reported that the majority of employers want to continue to offer benefits to retirees but need to ensure they can coordinate coverage and administrative duties with any new Medicare benefit. As a result, Mr. Kaleta noted, over 40 large employers and employer-related trade associations have created the Employers Coalition on Medicare (ECOM).  He noted that some ECOM members offer retiree health coverage and others do not but that all members recognize the challenges to continuing such coverage.  ECOM members hope to provide technical expertise and practical knowledge about how employers deliver benefits to Medicare eligibles as Congress crafts new Medicare drug benefit proposals.

Finally, Mr. Kaleta outlined the ECOM's principles for a new Medicare drug benefit, including that: 1) a drug benefit should be established in the context of comprehensive Medicare reform; 2) all Medicare beneficiaries should be eligible for drug coverage; and 3) a new benefit should offer flexibility to employers and beneficiaries including the option to supplement Medicare coverage without penalty.

Ms. Guarisco then discussed how employers coordinate with Medicare benefits and offered suggestions for Medicare reform. Ms. Guarisco reported that GM's current health program offers a choice of health plans to both active and retired workers and, as a result, GM has experience in providing and managing health care, prescription drug, dental and vision coverage. GM also coordinates with Medicare and other health care payers, including Medicare+Choice plans.

Outlining the current coordination of health care benefits for GM retirees, Ms. Guarisco noted that Medicare serves as the primary payer for all Medicare covered services.  Under this structure, Medicare pays providers directly and then notifies beneficiaries and any secondary coverage plans, in this case, GM.  The secondary coverage plan then pays for any services covered under their plan rules.  The provider can bill beneficiaries for any amounts (co-pays, deductibles, etc.) not covered by the primary or secondary programs. Ms. Guarisco stated that this payment structure should continue for any new benefit program.

Ms. Guarisco stated that necessary benefit changes should take place in the context of Medicare reform. She also noted that any new Medicare drug benefit should provide universal coverage, offer a meaningful and affordable benefit, and offer employers flexibility to coordinate benefits.  Medicare reform, according to Ms. Guarisco, should update the Medicare program and benefit structure to drive quality improvements through an integrated and updated benefit package, disclosure of quality and efficiency information, disease prevention and management programs, and increased consumer participation in health care coverage selection.

Noting that most earlier legislative proposals for a Medicare drug benefit focused not on design and coordination issues but on cost concerns, an audience member asked the panelists what they would recommend if there isn't enough federal funding available to implement their ideal reform plan. Mr. Kaleta responded that ECOM members want to make sure that all Medicare beneficiaries are treated equally and offered the same benefits. Ms. Guarisco noted that both employer-provided dollars and beneficiary dollars spent toward a drug benefit or integrated benefit package should be counted equally toward any out-of-pocket spending cap.  She noted that some earlier legislative proposals did not allow employer-spent dollars to count toward the beneficiary's out-of-pocket spending cap.  She stated, and Mr. Kaleta agreed, that the "donut" concept (i.e., a gap in coverage between Medicare-covered or shared expenses and a catastrophic, out-of-pocket spending limit) would make it harder for employers to coordinate coverage with a new Medicare program.