Putting five million retirees at risk for higher health care costs – why changing the status of the Medicare Part D rebate to employers is a bad idea

As companies take the accounting charge related to the loss of the tax deduction for prescriptions drugs under the Medicare Part D rebate, the Administration is spinning the issue as no big deal. Well, yes it is a big deal because five million retirees may lose their company prescription benefits or see them reduced. If they are forced into Medicare Part D drug coverage these retiree’s out of pocket costs for prescription drugs will rise and they will lose the safety net of having their former employer manage their benefits and provide assistance when necessary.

This rebate was crafted not as a windfall for corporations as some in Washington now claim, but to encourage them to keep the coverage and to save the federal government money on Part D subsidies.

The White House press secretary recently said they were just closing a loophole. What nonsense, it is a pure revenue raiser for health care reform. However, keep in mind that the cost of this rebate is less than half of the governments cost per person for Part D. In a joint letter to Sen Harry Reid in December 2009, the American Benefits Council and the AFL-CIO pointed out: 

Independent calculations show that if as few as 24 percent of retirees are dropped from employer plans and obtain coverage through Medicare Part D, then Section 9012 will be a net revenue losing provision. 

This alert was dismissed out of hand as were many others pointing out the likely unintended consequences of reform as then conceived and now the law of the land.

During the Fall of 2009 I and several colleagues from other companies  met with dozens of House and Senate staffers on this issue trying to explain the impact of the change, it’s implications for retirees and the potential increase in government costs. Not one person we talked to knew about the issue or was aware it was even in the legislation. Several expressed shock, some asked that we talk to other staffers and to budget staff members.

As you can see, the result was simply ignoring all they were told.  Today the White House and others in Washington blame employers for overreacting, who will they blame when retirees lose their prescription coverage…as if we had to ask.

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