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Medicare Part D Drug Coverage: What Do AFSCME Retirees Need to Know?

A Leaders' Guide

General Information:

• Starting November 15, 2005, all seniors eligible for Medicare could buy the new Medicare-sponsored Part D drug benefit. The benefit, which went into effect on January 1, 2006, is sold as private insurance in two forms: as a drug-only insurance plan OR as a drug benefit included in Medicare Advantage managed care plans (such as HMOs).
• The initial open enrollment period closed on May 15, 2006. After that date, seniors can't sign up until the next open enrollment period, beginning on November 15, 2006. Coverage for 2007 starts on January 1.
• Part D is voluntary. Retirees who have employer-, union-, or pension fund-sponsored drug plans will be able to stay in their plans. Generally, these plans will provide better benefits than Part D. Many employer/union/pension fund plans qualify for a new Medicare subsidy, which should help to stabilize their rising costs.
• Retirees who want to keep their current employer/union/pension fund drug coverage won't need to purchase Part D too. That would duplicate coverage and cost retirees more. Also, there is nothing in the law to prevent those plans from canceling coverage for any retiree who joins Part D. Some employers have already done this. In fact, some employers have cancelled all retiree health coverage for those who join Part D because it's impossible for them to separate drug coverage from other plan benefits. So, again, retirees shouldn't join a Part D plan unless their employer/union/pension fund plan tells them they should.

Retirees who currently have drug coverage:

• Retirees with employer/union/pension fund coverage can contact the employer or fund benefit office OR their AFSCME Council or Local Union to see if retirees need to take any action regarding Part D (the answer to this question will probably be "no" — most of these plans won't change at all).
• If the plan sponsor (employer/union/pension fund) pays most or all of the premium cost, there should be no reason for retirees to sign up for Part D, unless the employer instructs them to do so. [See next section for info on retirees who "self-pay" premium costs.]
• Employers/unions/pension funds and similar sponsors of retiree drug plans are required to send a notice to plan participants by November 14 each year that will state whether the plan is providing "creditable coverage" for drugs under the Medicare law. The notice may come in a special mailing or as part of a regular plan mailing (such as a newsletter).

  The creditable coverage notice tells retirees if the plan's current benefit is, on average, at least as good as the standard Medicare drug benefit. If coverage is creditable, retirees can stay in the current plan indefinitely and won't have to pay a penalty if they need to join a Medicare Part D plan in the future. Retirees should keep the notice for future reference.

  CAUTION! If a retiree is considering dropping an employer/union/ pension fund drug plan in order to buy Part D, they should first check with their employer/union/fund to make sure they have the option to rejoin their plan at a future date (it's an important safeguard). Also, retirees need to know if dropping the drug coverage means the plan will drop them from the entire retiree health care package (a potential catastrophe). If so, a retiree needs to be prepared to replace all their health care benefits, not just drug coverage. Retirees should contact the employer/union/fund first, to learn the plan rules, before even considering a Part D plan.

• Medigap plans that cover prescriptions (H, I and J) will keep operating, but for current participants only. Since new retirees won't be allowed to join in the future, the cost of these plans could rise rapidly. Also, Medigap drug coverage is generally considered less comprehensive than Part D, so retirees may want to call their plans and consider new options.
• Many HMOs will be incorporating Part D into their benefit packages. Retirees in HMOs (formerly "Medicare+Choice," now know as "Medicare Advantage" plans) should check with their plans for specific information. The same is true for retirees with drug coverage from the Department of Veterans Affairs (VA) or the military's TriCare program.

"Self-pay" retirees in employer/union/pension fund plans:

• Some employer/union/pension fund-sponsored health plans provide retirees with group coverage, but at the retirees' own expense. Retirees who currently pay most or all of their premiums need to find out how the sponsor will be handling Part D. Plan sponsors have several options. One is to coordinate their health package with a Part D plan (wrapping additional drug benefits around Part D). This would reduce the cost of the retirees' current premiums. Another is to drop out the drug benefit from the rest of the health care package. Retirees would continue to get their medical benefits from the group plan, but would have to buy Part D on their own in order to get drug coverage.
• See Caution! section above; it applies to "self-pay" retirees, too.
• If the plan sponsor doesn't coordinate with Part D, and the plan provides at-least comparable drug benefits, the self-pay retirees will get a "creditable coverage" notice in the mail. Retirees who get this notice will avoid paying the Part D penalty if they eventually decide to leave their group plan and buy Part D on their own.

Retirees with no coverage for drugs:

• Retirees who have no drug coverage at all may want to consider purchasing Part D. It provides up to about $1,300 annually to help pay drug bills, plus a catastrophic feature that kicks in for big drug spenders (pays 95% of drug costs after retiree spends $3,600 each year).
• Even those who don't use a lot of drugs may want to consider it. If seniors wait beyond their initial eligibility period and then join Part D at some future time, they will be required to pay higher premiums — permanently. The premium penalty is 1% more for each month a beneficiary delays joining Part D, unless the retiree has "creditable coverage."

Comparing Part D plans:

• When comparing Part D plans, retirees need to look at the list of drugs each plan covers (the "formulary"). Every plan must offer at least one brand drug and one generic in each covered category — but these won't always be the ones a retiree is currently taking. For example, a retiree may take Lipitor for high cholesterol, but a plan may offer only Zocor. To get coverage from that plan, a retiree would have to switch. Also, one of the retiree's drugs may be on the plan's formulary (Zocor, for example), but not another (let's say Fosamax for bones). Clearly, a retiree needs to study the formulary before signing up for a Part-D plan.
• The various Part D plans available in a geographic area may not all do business with the same area pharmacies. So, if a retiree likes a certain pharmacy, he/she should compare plans to see which ones include it in their coverage network.
• The Part D "Standard Benefit" may vary from plan to plan. The Standard Benefit is the average: $25 monthly premium, $250 annual deductible, 25% retiree co-pays for drugs up to $2,250 a year, a big coverage gap between $2,250 and $5,100 in annual costs, then catastrophic coverage (5% retiree co-pays). Plans can vary these amounts, however, as long as the total value of their Part D benefit equals the standard. When shopping for Part D plans, retirees will need to look carefully at the various plan designs — not an easy task. Comparing Part D plans can be very confusing!

"Extra Help" for lower incomes:

• For lower income retirees, Medicare's "Extra Help" program will pay most of the plan's co-pays, making Part D a more complete benefit. Single retirees with incomes below $14.355 and married couples with incomes below $19,245 may qualify. Extra Help applications are available by calling the Medicare Helpline (see resource section on next page).
• In some cases, retirees with employer plans who also have very low incomes might want to look into Part D plus the "Extra Help" program. The combination could eliminate high co-pays, making it less expensive than the retiree's employer or union plan. In most cases, however, retirees will be better off staying in their employer/union plans.

Dates to Remember:

• May 15, 2006: Last day of enrollment for 2006 Part D plans, with no penalty.
• November 15, 2006: Enrollment period begins for 2007 Part D plans; seniors already enrolled in Part D will have their first chance to switch to a different Part D plan.
• December 31, 2006: Last day 2006 enrollees can switch to a different plan.

Information Resources:

Every Medicare beneficiary receives the official Medicare & You handbook, which provides basic information on Part D (and other Medicare benefits) each year. In addition, AFSCME retiree leaders may want to advise members of the following resources:

• The benefits office for employer/union/pension fund health plans will be able to tell retirees if their current drug coverage will be coordinated with Part D, if covered retirees need to take any personal action, and if the retiree drug plan provides "creditable coverage." Retiree leaders may want to have the employer, pension fund and/or union-office phone numbers on hand, to pass on to retiree members who are looking for information on how Part D will affect their current health benefits.
• The Medicare Helpline provides general information on Part D and can fill requests for applications for "Extra Help." Call 1-800-MEDICARE (1-800-633-4227).
• State Health Insurance Assistance Programs (SHIPs) offer free counseling services on many retiree health insurance issues. Currently, volunteer counselors are being trained by Medicare to help retirees decide whether or not they should buy Part D coverage. SHIP counselors can also help retirees compare Part D plans. For the phone number of the SHIP in your area, call the ElderCare Locator: 1-800-677-1116.
• Medicare's Web site has numerous fact sheets on specific issues related to the Part D drugs program. The site also features a "Medicare Prescription Drug Plan Finder Tool" that will help retirees compare available plans.
• The AFSCME Retiree Program in Washington, D.C. is also available to retiree leaders in search of information and answers. Call us at 202-429-1274.

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