Prescription Drug Benefit

IPMA-HR along with several other national associations, including the National Association of State Retirement Administrators, the National Conference of Public Employee Retirement Systems, the National Association of Counties, the National Conference of State Legislatures and the Government Finance Officers Association, submitted comments to the Centers for Medicare & Medicaid Services (CMS) urging them to consider public sector issues as they finalize the regulations governing the new prescription drug benefit.

The prescription drug benefit was added to Medicare through the Medicare Prescription Drug Improvement and Modernization Act (MMA) of 2003. CMS is responsible for developing regulations implementing the new benefit and plans to issue final regulations early in 2005.

In order to encourage employers to continue offering a prescription drug benefit to retirees, the regulations offer two options that reduce the cost to employers. One is a tax-free subsidy of 28 percent to employers who offer the "actuarial equivalent" of the prescription drug coverage provided under the MMA. The other is by having employers provide "wrap around" coverage that is secondary to the subsidized benefit under the MMA.

The comments submitted by IPMA-HR notes that a significant number of public employers offer retiree health care benefits, that the cost of providing these benefits is increasing, and that the new drug benefit could provide much needed assistance to employers striving to preserve their retiree health care programs.

Text of the Comments

October 4, 2004
Via Electronic Mail: http://www.cms.hhs.gov/regulations/ecomments
Centers for Medicare & Medicaid Services
Department of Health and Human Services
P.O. Box 8014
Baltimore, MD 21244-8014

Attention: CMS-4068-P, Comments on Proposed Regulations: Medicare Program; Medicare Prescription Drug Benefit

On behalf of the National Association of State Retirement Administrators (NASRA), the National Conference of State Legislatures (NCSL), the National Association of Counties (NACo) the Government Finance Officers Association (GFOA), the National Association of Auditors Comptrollers and Treasurers (NASACT), the National Conference on Public Employee Retirement Systems (NCPERS), and the International Public Management Association for Human Resources (IPMA-HR), we submit these comments in response to proposed regulations implementing the Medicare Part D program enacted pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). CMS specifically requested comments from plan sponsors of state and local government group health plans that would be prospective applicants for the retiree drug subsidy available under the MMA. Our national organizations collectively represent state and local governments and their public retirement systems, which provide retiree health care coverage to millions of public employees, retirees, and their beneficiaries.

Public Sector Retiree Plans are an Integral Component of the National Health Care System Benefits, including retiree health care, continue to be an important factor in the attraction and retention of employees in the public sector. Public sector employees, in many cases, choose the better and more secure benefits typically associated with public sector employment in lieu of the higher compensation that traditionally characterizes the private sector. A recent report issued by AARP found that state and local governments continue to offer their retirees health coverage at a higher rate than any other industry. States alone purchase health care for more than four million employees and retirees, and millions more dependents, according to the JSI Research and Training Institute. These public retiree health care programs are an integral component of our nation's system of health care insurance for non-working seniors and should receive strong consideration by CMS when finalizing the regulations implementing the new Medicare Part D Program.

Retaining Coverage is Critical Given the significant level of cost increases and the expected growth of the retired population-particularly relative to the number of active employees-the new Medicare Part D Program could provide much needed assistance to many public sector employers aiming to preserve their health care program for the long term. CMS is encouraged to establish final procedures and subsidy calculations that maximize the number of plan sponsors continuing to provide benefits to their retirees. Great care should also be taken to ensure the highest level of simplicity and flexibility in the administration of the program.

Parity for State and Local Retiree Health Plans is Imperative Given the magnitude of retirees and their families covered by state and local governmental group health plans, CMS must ensure these programs are treated equitably under the Medicare Part D program. The preamble to the proposed MMA regulation specifically recognizes that it is important to maintain current retiree coverage under governmental plans. The final regulations should assure the rights of state and local governmental plans to receive the subsidy and other benefits set forth in the MMA. In addition, we request that the final regulations "do no harm" to public retiree plans. No additional rules or constraints should be placed on the ability of governmental group health plans to either provide qualified retiree prescription drug coverage and receive the subsidy or, in the alternative, provide wrap-around coverage that is secondary to the benefit offered under Medicare Part D.

Public Group Health Plans Entitled to MMA Benefits The proposed regulations recognize two essential facts about governmental plans, which should also be reflected in the final rule. First, governmental group health plans are entitled to the subsidy. Group health plans sponsored by federal, state, and local governments are explicitly entitled to the retiree drug subsidy available to employer sponsored qualified retiree prescription drug plans as recognized in the MMA Section 1860D-22(c)(3)(A) and the implementing regulations at 45 CFR § 423.882.

Second, one of the purposes of the subsidy is to allow governmental plans to achieve savings from the Part D program. CMS recognizes that state and local governmental group health plans will achieve savings from the Part D program either as a result of receiving the Part D subsidy or because their retirees enroll in a Medicare Part D plan. (69 Fed. Reg. 46772)

Plan Sponsor Definition Should Defer to State and Local Law The MMA provides that the plan sponsor shall receive the retiree drug subsidy. CMS should not define "plan sponsor" for purposes of the entity that receives the subsidy, but should allow state and local governmental plans to define the sponsor in accordance with applicable state or local law. The proposed rule references the ERISA definition of "plan sponsor" at ERISA Section 3(16). State and local governmental group health plans are excepted from ERISA. Consequently, the ERISA definition of plan sponsor, while a reference point, is not necessarily applicable for state and local governmental health plans.

Governmental group health plans may be established in a variety of methods. In some cases, governmental plans are separate legal entities from the state government. They may have boards of trustees that are responsible for the funding and management of the plan. In other cases, plans may be more closely managed by the state legislature or local government, which sets benefits, eligibility rules, and financing. State and local governmental plans should be free to determine who is the plan sponsor based on applicable state or local law.

Most state and local governmental plans are familiar with the process of determining which entity is the plan sponsor. In particular, state and local plans had to face this issue when implementing the privacy rules of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Placing guidelines defining "plan sponsor" in the final regulation could impact both state and local law and the interpretation of these laws that was made during the HIPAA implementation process. Consequently, we request that CMS refrain from defining the "plan sponsor" for purposes of state and local governmental plans or, in the alternative if a definition is necessary, simply refer to the "plan sponsor" as defined under applicable state or local law and regulation.

Public Plans Should Be Permitted to Contract with or Become PDPs and MA-PDs
The regulations should assure that public retiree plans have the same opportunity as private plans to contract with and/or become a Part D Prescription Drug Plan (PDP) or Medicare Advantage Prescription Drug Plan (MA-PD). The law and regulations provide that a plan sponsor may either provide a Part D plan under a contract with a Medicare Advantage Prescription Drug plan (MA-PD) or a Prescription Drug Plan (PDP), or directly sponsor (e.g. "become") a Part D or MA-PD plan.

With respect to contracting with a PDP or MA-PD, we encourage CMS to use its waiver authority to grant waivers favorable to public sector retiree drug plans, such as those that recognize that public retirees may be served by a nationwide PDP. We encourage transparency, and waivers should be publicly available on-line and easily accessible.

With respect to direclty sponsoring an MA-PD or PDP plan, we recommend that, either through final regulations or the waiver process, CMS assure that state and local government plans have the same opportunity to directly sposnsor one of these programs as private employer-sponsored plans. State and local government plans have significant numbers of retirees and may be in a unique position to directly sponsor a PDP. For example, a governmental plan could either take on the administrative functions of a PDP or contract with an administrator to run the PDP for them but allow the governmental entity to absorb the risk of the PDP agreement. The proposed regulations state that a PDP sponsor is limited to a non-governmental entity that is certified as meeting the Part D requirements for a PDP sponsor. We recommend that this limitation be removed to allow state and local governmental plans to explore the option of directly sponsoring a PDP so as to assure continuity of retiree drug coverage for their retired population and beneficiaries.

Strong Consideration Should be Given to Public Sector Comments We greatly appreciate the opportunity to comment on the proposed regulations implementing the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). The millions of retirees and dependents in our country covered by a state and local government retiree health care plan necessitates that strong consideration be given to the implementation issues these plans face in complying with the new Part D Program. These comments address only general issues faced by the public sector. We strongly encourage CMS to give great attention to the individual comments submitted by state and local government employers and their retiree health care plans.

If you have any questions or need additional information, please do not hesitate to contact our representatives:

Jeannine Markoe Raymond, NASRA, 202-624-1417, jeannine@nasra.org 
Gerri Madrid Davis, NCSL, 202-624-8670, gerri.madrid@ncsl.org
Daria Daniel, NACo, 202- 942-4212, ddaniel@naco.org
Barrie Tabin Berger, GFOA, 202-393-8020, btberger@gfoa.org
Cornelia Chebinou, NASACT, 202-624-5451, cchebinou@nasact.org
Tina Ott Chiappetta, IPMA-HR, (703) 549-7100, cchiapp@ipma-hr.org
Hank Kim, NCPERS, (202) 624-1458, hank@ncpers.org