Cleveland Plain Dealer: Look before you leap! (The new Medicare drug benefit)

The Plain Dealer

Compare employer's coverage with Medicare offerings

Sunday, October 16, 2005

Editor's note: This is the third in a series of articles on Medicare's new drug benefit that will appear Sundays in this space. The first two articles, and others on Medicare, are available at www.cleveland.com/medicare.

When Congress was debating whether to add a drug benefit to Medicare two years ago, some members worried that it could backfire on seniors who have employer-sponsored health coverage.
Cash-strapped employers could decide to save money by canceling drug coverage and telling retirees to join a less generous Medicare drug plan.

To prevent that from happening, Congress added a special enticement to the new benefit just for employers: for each retiree they continue to cover, the government would pay for 28 percent of the cost, up to $1,330 a year.

About $87 billion is available for employers who offer drug coverage that is at least as good as the Medicare benefit. To be eligible for the subsidy, employers must also spend at least as much as Medicare pays for its benefit. Even those conditions don't stop employers from reducing their benefit to match Medicare's.

Now the roughly 11 million retirees over 65 who depend on employer-sponsored drug coverage are finding out if their old bosses will go for the deal.

And even if your employer-sponsored coverage doesn't change, you may want some thing different. After looking over the new Medicare plans, you may find one better suits your needs.

But this is Medicare, so how, whether and when to switch is not exactly crystal clear.

Will my former employer continue to offer drug coverage?

More than 9,000 employers and unions that offer retiree drug coverage nationwide have applied for the subsidy, says David Repko, a consultant at the Cleveland office of Towers, Perrin, an employer benefits consulting firm. The deadline is Oct. 31.

The Medicare law requires employers to tell retirees if their coverage is on average as good as the basic Medicare drug coverage. That's called "creditable coverage" and you must be told whether you have it or not by Nov. 15, which also happens to be when enrollment begins for the Medicare drug plans.

Save that letter with your most precious keepsakes. It's not just bureaucratic mumbo-jumbo.

I'll keep my employer coverage for now, but can I join a Medicare plan later if my situation changes?

Yes, but you may have to pay a late penalty - forever. If you don't have "creditable coverage" and decide to switch from your employer-sponsored drug coverage to a better Medicare drug plan after the enrollment ends May 15, you will pay an extra 1 percent more in monthly premiums for each month you delayed signing up.

Since the next opportunity for enrollment is not until Nov. 15, 2006 - another six months - your monthly premium will be an extra 6 percent. If you wait a year beyond that, you will pay an extra 18 percent.

But if your employer dumps you, there's no penalty if you choose a Medicare plan within 63 days. There also is no penalty if you switch from one plan to another of at least equal value, that is, if your plan is deemed "creditable."

What if a Medicare drug plan is clearly better than my employer coverage?

If you pay a significant share of your retiree coverage, you may get a better deal with Medicare if you qualify for the financial assistance that's available for beneficiaries with limited income and assets.

But if you leave your employer's plan, most do not allow you to return.

"It's a one-way street," says Repko.

To reach this Plain Dealer columnist:
sjaffe@plaind.com, 216-999-4822