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Member, Beacon International Group, Ltd.
Employers that will lose a tax break for offering prescription drug coverage to Medicare-eligible retirees are considering a variety of design changes, according to a survey released Wednesday.
Under a provision in the health care reform law, employers with prescription drug plans provided to Medicare-eligible retirees in 2013 no longer will be able to receive a tax deduction equal to the amount of the tax-free federal subsidy they receive for prescription drug expenses.
Under a 2003 law that added a prescription drug benefit to the Medicare program, employers that have provided coverage at least equal to Medicare Part D receive a tax-free subsidy equal to 28% of medication costs within a certain range incurred by Medicare-eligible retirees.
In a survey of 344 employers, Lincolnshire, Ill.-based Aon Hewitt Inc. found that 75% now receive the prescription drug subsidy. Of those receiving the subsidy, 73% will alter their retiree drug benefits strategy as a result of the elimination of the tax break.
Among designs favored by employers that are considering changes are directly contracting with a Medicare Part D prescription drug plan, which 34% of respondents are considering.
Thirty percent of employers are considering a defined contribution approach in which retirees would receive a fixed contribution and use it to buy drug coverage in the individual Medicare market and 9% anticipate eliminating coverage.