Many employers are contemplating alternatives to continuing retiree prescription drug coverage including outsourcing a Part D plan. There are some important issues for an Employer Group Waiver Plans

There are several key questions that should be asked and understood before an employer decides to set up an Employer Group Waiver Plan for Part D of Medicare, here are a few.

Can the employer dictate all the provisions of the plan in terms of benefits? 

Not all, but most.  The plan must be actuarially equivalent and must contain the Medicare catastrophic provisions.  Most employer plans have actuarial values significantly greater than the 2010 Medicare Standard Plan, so imposing the plan sponsor plan of benefits is usually not a problem.  Actuarially equivalent is a stricter standard here than RDS, so provisions like retiree coinsurance = 100% in certain therapeutic categories does not pass the actuarial equivalence tests. 

Does setting this up affect FAS106 liabilities? 

Yes, Medicare payments to the plan sponsor by way of lower premiums reduce FAS 106 liabilities like they are reduced with RDS payments.  However, for governmental employers using GASB 45, more favorable results occur, as RDS payments do not reduce the GASB 45 liabilities — whereas Medicare payments under EGWP do reduce the GASB 45 liabilities. 

Does the employer normally maintain two plans, one for pre-65 and the EGWP? 

Yes. 

Can a union still negotiate benefit design for prescription coverage  for now active employees for when they retire and become 65 and part of EGWP meaning there could be different sets of benefits within the EGWP? 

Yes.

 Is how formulary drugs are used still up to the employer? 

No, typically not.  The formulary and care management programs are filed with CMS.  However, most EGWP plans have a tight and a broad formulary, and the broad formulary is likely similar to the plan sponsor’s current formulary.  While strictly not formulary, there are also tactical and care management programs that must be adhered to that a plan sponsor may not be used to using now, such as mandatory 90 days at retail.

The issue of which formulary drugs are used by the EGWP can be significant to retirees who may be forced to switch drugs they have used for some time.

Thanks to Mike Morfe, Senior VP and Consulting Actuary, Aon Consulting for supplying the answers to these questions.