March 12, 2004
BB 04—30

Medicare Official Outlines Issues and Timeline for Guidance on Employer Subsidy for Retiree Prescription Drug Coverage

James Mayhew, from the private health insurance group of the Centers for Medicare and Medicaid Services (CMS), said on March 11 that regulations on the employer subsidy provisions for qualified retiree prescription drug coverage may be proposed as early as this spring. The employer subsidies were authorized by the Medicare Modernization Act (MMA), enacted into law in December 2003. Mayhew's comments came at a conference sponsored by America's Health Insurance Plans (AHIP, formerly the American Association of Health Plans (AAHP)).

Under MMA, employers that provide retiree prescription drug coverage that is at least "actuarially equivalent" to the Medicare standard drug benefit available to all Medicare beneficiaries starting in 2006 will be eligible for a 28 percent tax-free subsidy for each retiree's annual prescription drug claims between $250 and $5,000. The subsidy is available for the prescription drug claims of retirees who are eligible for Medicare benefits, covered under an employer-sponsored retiree health plan and are not enrolled in a Medicare Part D health plan that otherwise provides prescription drug coverage to Medicare beneficiaries. A detailed outline on the Medicare employer subsidy provisions prepared by the Groom Law Group is available on the Council's website.

Mayhew said CMS will address several issues in their proposed rule, including the definition of actuarially equivalent retiree health coverage, the determination of "allowable" prescription drug costs for subsidy purposes, claims information and other data required for subsidy payments, and the contents and frequency of notices required to be provided to retirees concerning whether the employer's retiree plan provides coverage that is at least actuarially equivalent to Medicare's drug benefit.

Mayhew also mentioned that the guidance will address recordkeeping requirements for possible audits of employer plans that receive subsidy payments, and will provide special rules for employers with plan years that do not coincide with the calendar year on which the subsidy payments will be determined. After the proposed rule is issued by CMS, there will a 60-day comment period followed by the issuance of a final rule, which the agency anticipates will be published by the end of 2004 or early 2005.

Mayhew invited comments to be sent to him prior to the issuance of the proposed rule at The Council will also provide its views on several of the issues expected to be addressed by the proposed rule, so please feel free to share any comments you may have on these issues with Paul Dennett, Council vice president, health policy, at (202) 289-6700.

Treasury Presentation Summarizing HSAs Now Available

On March 10, Roy J. Ramthun, U.S. Treasury Department senior advisor for health initiatives, delivered a presentation summarizing the newly enacted Health Savings Accounts (HSAs). As indicated in the presentation, Treasury expects to issue additional guidance on HSAs later this month. The priority issues to be covered by the March guidance include the following:

  • The definition of preventive care;
  • Treatment of prescription drugs;
  • Coordination with Health Reimbursement Arrangements (HRAs) and Flexible Spending Arrangements (FSAs); and
  • A model HSA plan document.

The Treasury Department also expects to issue HSA guidance in June, 2004 and regulations in 2005.

The top three topics to be covered in the March guidance are the same topics the Council identified in its comment letter as priority issues for employers. Treasury officials hope that by answering some of the key questions early, employers will have enough time to consider offering HSAs as part of their 2005 benefit options. For more information, contact Susan Relland, Counsel health policy legal counsel, at (202) 289-6700.


The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.