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Retiree Rx drug subsidy still popular: Survey

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Most large employers in 2007 will continue to take a federal subsidy that is available to organizations that offer generous retiree prescription drug coverage, according to a survey released Wednesday.

Just under 80% of 302 employers surveyed by the Kaiser Family Foundation and Hewitt Associates Inc. said they will take the subsidy, which is available to employers retaining prescription drug coverage that is at least equal to what Medicare Part D provides. The subsidy provides tax-free reimbursement to employers of 28% of each retiree's prescription drug costs between $250 and $5,000.

That percentage of employers taking the subsidy is virtually unchanged from this year, when Medicare was expanded to cover prescription drug costs and the employer drug cost subsidy went into effect.

Many benefit experts predicted that the percentage of employers taking the subsidy would quickly trail off in favor of what could be more cost-effective strategies, such as providing drug benefits through a plan that supplements Part D or dropping drug coverage and paying premiums for so-called Medicare Advantage plans that provide prescription drug coverage.

Such a shift has yet to develop for several reasons, said Frank McArdle, a Hewitt consultant in Washington and one of the survey authors. One reason employers are continuing to take the subsidy is that it is the least disruptive approach, allowing them to offer the same coverage to retirees as they previously did, Mr. McArdle said.

Additionally, employers--based on prior experience--aren't sure about the long-term viability of other approaches, such as shifting retirees to Medicare Advantage plans. Such plans could become less attractive to retirees, for example, if Congress cuts funding, something that has occurred previously, Mr. McArdle noted.

Other employers, having previously put so much time and effort into doing the necessary paperwork to receive the drug subsidy, are reluctant, at least for now, to analyze other approaches, said Dale Yamamoto, Hewitt's chief health care actuary in Lincolnshire, Ill.