Employee Benefit News

March 23, 2006

Fewer firms likely to take drug subsidy next year

Employers seem much less apt to take the federal government's
subsidy in return for providing retiree drug coverage in 2007, unlike
this year, according to a recent survey by Towers Perrin and the
International Society of Certified Employee Benefit Specialists.

Of those that have picked a retiree drug plan strategy, 42% plan to
maintain benefits and collect the federal subsidy for 2007, a steep
decline from the 70% that said the same about this year.

At least 63% of employers have yet to decide how to handle their
retiree drug plans for next year. This leaves 37% that have made up
their minds to collect the federal subsidy, offer a supplemental plan
in coordination with Medicare Part D, offer a specific Part D plan or
stop providing coverage. In that group, 12% intend to eliminate all
retiree medical coverage or drop retiree drug coverage, the survey
indicates.

Taking the subsidy was the dominant strategy this year, with 79% of
large firms opting for the subsidy, according to the Kaiser Family
Foundation. Most plan sponsors that opted for the subsidy this year
are using it to reduce their medical costs, Towers Perrin and
ISCEBS note.