July 26, 2004
BB 04—84

Proposed Medicare Prescription Drug Coverage Regulations Issued

On June 26, the Centers for Medicare and Medicaid Services (CMS) issued proposed regulations to implement the Medicare Modernization Act of 2003 (MMA). Included are provisions for employers that choose to receive a subsidy for offering retiree prescription drug coverage or coordinate with the new expanded benefits available under Medicare. The proposed rules also outline ways employers can (1) contract exclusively with health plans under the new Medicare Advantage program to serve their retirees or (2) elect to have the employer's retiree health plan be designated as a Medicare Advantage plan under a special waiver authority program.

In a June 26 statement, CMS Administrator Mark McClellan emphasized the need for further public comment on the new rules to provide "affordable drug coverage, access to popular health plans, and more secure retirement coverage." The agency also issued a 15-page fact sheet that provides a high level summary of the proposed Medicare rules. The fact sheet includes the finding that the estimated value of the prescription drug subsidy to an employer is $611 per beneficiary in 2006 without regard to the tax liability or between $855 and $940 once taking corporate tax rates into account.

As noted by Paul Dennett, Council vice president, health policy, in a statement issued by the Council today, "We are particularly encouraged that CMS has underscored its openness to working closely with employers over the next few months to make sure the proposed rules work as effectively as possible. . . We intend to offer our assistance in every way we can to help make this new program a success for all seniors."

The proposed rules are available for pubic comment until October 4, 2004. The Council expects to submit comments to CMS on the new guidance and will soon be scheduling a conference call with Council members to review any employer concerns with the proposed regulations. CMS has stated that they plan to finalize these regulations by early 2005 with new drug coverage beginning on January 1, 2006. For additional information, please contact Paul Dennett or 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.