Because of administrative snafus such as not having Social Security numbers for all plan members—something the Centers for Medicare & Medicaid Services requires for payment—some employers are now scrambling to meet a March 31 deadline for final reconciliation. If they are unable to confirm eligibility of all of their plan members, they will not be paid for them—or worse, they may have to pay back any interim payments they’ve already received on behalf of those retirees.

    Because of these hassles and a variety of other reasons, some employers that provide prescription drug benefits to Medicare-eligible retirees are now considering alternatives to the RDS, retiree health benefits experts report.

    Under the Medicare Modernization Act of 2003 employers have several options. They can:

• Receive a tax-free subsidy of 28 percent of eligible prescription drug expenses for employers that offer drug benefit plans equal to the Medicare Part D drug benefit.

• Supplement Medicare D coverage.

• Contract with a commercial prescription drug plan or Medicare Advantage Plan, which would receive capitated payments from the federal government that could be used to reduce premiums.

• Create an employer-owned prescription drug plan, where the employer receives the capitated payments directly from the federal government.

    Most employers opt to take the tax-free subsidy, because it gives them the most control and doesn’t require any plan changes to be made, according to Rick McGill, a principal responsible for medical consulting services in the Atlanta office of Hewitt Associates Inc.

    "Financially, an employer has sole discretion over what they do with the subsidy. It’s also tax-free. And from the retiree perspective, it’s non-disruptive," he says.

    Moreover, commercial prescription drug plans, in which Medicare drug benefits would be offered by vendors, such as prescription benefit managers, were few and far between in early 2005, which was when Part D regulations were promulgated, and when employers began developing their benefit strategies for 2006, according to Mike Morfe, senior vice president at Aon Consulting in Somerset, New Jersey.

    But the subsidy application process has turned out to be "very labor-intensive for plan sponsors," says Stephen Parahus, a senior consultant at Towers Perrin in New York. "They didn’t realize the amount of data they would have to collect and the time commitment. As a result, employers have spent far too long with a lot of frustration to get payments that are less than they expected."

    In some cases employers "overestimated how many they thought would be eligible or the claims that they would be able to capture," McGill says. Only claims for drugs on the Medicare formulary can be included in the analysis, he says.

    "I was amazed at how many steps there were in the process," says Barb Zavodny, senior manager of corporate benefit strategy at McCormick & Co. Inc. in Sparks, Maryland, which applied for the retiree drug subsidy for prescription drug costs incurred by 800 retiree benefit plan members. "There are 12 steps in the reconciliation process, and each step has two or three steps. If you’re doing it in-house, it almost takes a half of a person to do this."

    Ray Brusca, vice president for benefits at Black & Decker Corp. in Towson, Maryland, says the company didn’t receive its first subsidy payment for 2006 until December 2007. Black & Decker expects to collect $250,000 from the Centers for Medicare & Medicaid Services on behalf of the 700 retirees and spouses enrolled in its retiree health care benefit plan, he says.

    "It’s a new program. They obviously had a lot of bugs to work out," Brusca says. "But they just got around to issuing our first payment."

    Part of the reason why the subsidy payments have been delayed or have been less than employers expected is that many employers have been unable to verify the eligibility of all of their retiree benefit plan members, a basic requirement for the payments.

    In particular, many plan sponsors are missing the Social Security numbers of the spouses of former employees. And because of concerns about potential identity theft, many of these spouses have been hesitant to provide the information when asked by plan administrators.

    "What delayed a lot of employers was getting their census squared away," says Derek Guyton, a principal and worldwide partner at Mercer in Chicago. "A lot of companies found their census data was inadequate. The big gap was information about the spouses."

    In other cases, employers have to contact retirees who inadvertently enrolled in Medicare Part D plans to confirm they intended to leave their former employer’s prescription drug plan. If not, those retirees must contact the Centers for Medicare & Medicaid Services themselves so they can be added back to their former employer’s rolls, says Kristi Davin, manager of employer Medicare products for Cigna HealthCare in Nashville, Tennessee.

    Another reason for the delayed subsidy payments was that it took a while for the Centers for Medicare & Medicaid Services’ computer system administering the application process to get up and running, according to Morfe.

    "Early on, it was a little like moving into a house that wasn’t quite done," he says. "CMS didn’t get the application process installed until July 2006."

    But even though the Centers for Medicare & Medicaid Services may have started late, it has caught up quickly, according to a spokesman for the government agency that administers RDS payments.

    "As of December 2007, 97 percent of interim payment requests submitted by plan sponsors have been paid," the spokesman wrote in an e-mail. "The RDS system did experience a technical issue in the fall of 2007 that temporarily delayed the processing of reconciliation payment requests to a small number of plan sponsors. However, the issue was resolved and reconciliation payment processing recently resumed."

    While many employers have applied for and received interim retiree drug subsidy payments, the Centers for Medicare & Medicaid Services says that so far only 6 percent of plan sponsors have submitted their final payment requests, a process called "reconciliation." Under the subsidy plan’s rules, employers only have 15 months after the close of their benefit plan year to "reconcile" all of their claims and the eligibility status of plan members. But CMS extended the deadline until March 31, 2008.

    "If you don’t file [a reconciliation], you have to give all the money back," says Pritpal Virdee, vice president of Medicare at St. Louis-based prescription drug benefit manager Express Scripts. "And employers that were unable to prove the eligibility of certain retirees will have to return interim payments made on their behalf."

    Unfortunately, "many employers have a fraction of retirees eligible for Medicare that they can’t get approved [by CMS] and are running out of time," Morfe says. "It may be a small number, but it’s big enough to matter."

    Rick Johnson, senior vice president and public sector health practice leader in the Washington office for the Segal Co., says he expects some of his clients may never be able to verify the eligibility of certain plan members and will have to forgo any subsidy attributable to them for 2006.

    "They very much bit off more than they could chew," he says. "But the question is, who else could have chewed it?" Even though employers can delegate the eligibility confirmation task to a third party, such as an insurer or PBM, it is ultimately their responsibility to make sure it is done, Johnson notes.

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