June 9, 2004
BB 04—64

In this issue:

  • CMS Holds Special Listening Session on Medicare Subsidy for Retiree Drug Benefits
  • House Sends Letter to Treasury on HSAs

CMS Holds Special Listening Session on Medicare Subsidy for Retiree Drug Benefits

On June 9, the Centers for Medicare and Medicaid (CMS) held a two-hour nationwide "Special Listening Session" conference call on the employer retiree drug benefit subsidy, the new tax-free payments which become available in 2006 to help stabilize employer-sponsored retiree prescription drug coverage. CMS hosted this session as part of its "Open Door Forum" series designed to improve the public's understanding of the implementation of the Medicare Modernization Act of 2003 (MMA) and obtain the views of various stakeholders.

During the first hour of the call, CMS staff posed questions to panelists representing employer sponsors of retiree health plans and the health plan industry. Questions posed by the CMS staff included, for example, how the new Medicare subsidy would apply to fully-insured retiree health coverage, how difficult it would be for employers to organize retiree cost data on a calendar year basis, and what factors an employer will consider when deciding which coverage options it will pursue for providing retiree health benefits in the future.

During the second hour, CMS staff listened to comments and questions from session participants. The agency staff stressed repeatedly that this was a listening session and they did not intend to provide answers to the questions by the employer or health plan representatives. The CMS staff emphasized they were trying to be flexible whenever possible in their interpretation of the recently enacted Medicare reform legislation and that answers to many of the questions posed during the call will soon be addressed in a Notice of Proposed Rule Making (NPRM). They also noted that employers will probably want to look at both the anticipated employer regulations on the tax-free subsidy as well as those interpreting Title I of MMA, which will provide guidance for those who may be considering contracting with Medicare to serve as a Prescription Drug Plan (PDP) for their retirees.

Employer and union participants asked questions about whether actuarial equivalence will include gross or net costs, whether the scope of audit will reach subcontractors, and whether an employer could require a retiree to enroll in a certain plan, and expressed concern about the ability to segregate claims for retirees who are and are not eligible for Medicare.

While the goal of the call was to hear primarily from employers, the question and comment session was dominated by members of Fairness for Already Insured Retirees (FAIR). Several FAIR members repeated the same message that giving a subsidy to employers that reduce coverage for retirees will increase retiree costs by over 21 times and that CMS should only "reward" those employers that maintain the plans they had in effect when the MMA legislation was enacted in December 2003. One FAIR member claimed EEOC's recent decision on the Erie County retiree health issue encourages employers to drop or reduce coverage for individuals already receiving retiree health benefits.

For additional information on the CMS special listening session call, contact Susan Relland, Council health policy legal counsel, at (202) 289-6700.

House Sends Letter to Treasury on HSAs
On June 3, House Ways and Means Committee Chairman Bill Thomas (R-CA) and Health Subcommittee Chairwoman Nancy Johnson (R-CT), sent a letter to U.S. Department of Treasury Secretary John Snow expressing their support for the inclusion of chemoprevention — defined as medications provided to asymptomatic individuals that prevent or delay the onset of disease — to Treasury's list of preventive services offered in coverage provided with Health Savings Accounts (HSAs). HSAs must be paired with a high-deductible health plan but the statute provides that preventive services may be provided without having to satisfy the high deductible requirements.

Treasury Notice 2004-23 includes an illustrative, but not exhaustive, list of services that can be considered preventive care. Treasury Notice 2004-25 also establishes the general rule that all prescription drug coverage must be subject to the high deductible. Reps. Thomas and Johnson's letter affirmed that Treasury's position on prescription drugs is consistent with Congress's intent. However, they suggest a limited exception for chemoprevention medications. Examples include the drug Fosomax to prevent the development of osteoporosis and the use of Tamoxifen or Raloxifen for women at high risk of breast cancer.

Treasury is expected to issue additional guidance on the definition of preventive care, along with many other open issues, by the end of June. The new letter from Reps. Thomas and Johnson appears to affirm earlier guidance from the Treasury Department that services provided to symptomatic individuals will generally not be considered preventive care and must therefore be subject to the high deductible standards for coverage offered in connection with HSAs.

For more information, contact Susan Relland, Council 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.