Employers that will lose a tax break for offering prescription drug coverage to Medicare-eligible retirees are considering a variety of design changes, according to a survey released April 21.
Under a provision in the health care reform law, employers with prescription drug plans provided to Medicare-eligible retirees in 2013 no longer will be able to receive a tax deduction equal to the amount of the tax-free federal subsidy they receive for prescription drug expenses.
Under a 2003 law that added a prescription drug benefit to the Medicare program, employers that have provided coverage at least equal to Medicare Part D receive a tax-free subsidy equal to 28 percent of medication costs within a certain range incurred by Medicare-eligible retirees.
In a survey of 344 employers, Lincolnshire, Illinois-based Aon Hewitt Inc. found that 75 percent now receive the prescription drug subsidy. Of those receiving the subsidy, 73 percent will alter their retiree drug benefits strategy as a result of the elimination of the tax break.
Among designs favored by employers that are considering changes are directly contracting with a Medicare Part D prescription drug plan, which 34 percent of respondents are considering.
Thirty percent of employers are considering a defined contribution approach in which retirees would receive a fixed contribution and use it to buy drug coverage in the individual Medicare market and 9 percent anticipate eliminating coverage.