Guest Article

(From the May 9, 2011 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

CMS Releases Standard Medicare Part D Benefit Parameters for 2012

Plan sponsors now have the parameters to determine whether their prescription drug plans will provide "creditable" coverage in 2012. Entities that offer prescription drug coverage, including group health plan sponsors, insurance issuers, and state-sponsored plans, are required to give notice before November 15 of each year (and at other specified times) to any Medicare eligible individual - including active employees and retirees - covered by the plan regarding whether the coverage is "creditable." A Medicare eligible individual who is covered by another plan and who later enrolls in Medicare's prescription drug benefit is penalized, through the imposition of a late Medicare enrollment penalty, if he or she failed to maintain "creditable" coverage (for a period of 63 days or longer) after initially becoming eligible for Medicare prescription drug benefits. Notice of whether the coverage is "creditable" must also be provided to the Centers for Medicare & Medicaid Services (CMS).

Prescription drug coverage is considered "creditable" if it is expected to pay on average as much as Standard Medicare Part D coverage. The actuarial value of the coverage must equal or exceed the actuarial value of Standard Medicare Part D coverage.

On April 4, the CMS announced the 2012 Part D Benefit Parameters for the Defined Standard Benefit, Low-Income Subsidy, and Retiree Drug Subsidy. The new Standard Medicare Part D parameters will enable plan sponsors to determine whether their 2012 plans will provide benefits that are at least actuarially equivalent to the Standard Medicare Part D benefit, and allow an exploration of the alternatives before finalizing next year's benefit design.

Standard Benefit Parameters

The Standard Benefit Parameters for 2012 reflect an annual percentage increase of 3.34%, and are rounded to the nearest required multiple.

The total out-of-pocket cost before catastrophic coverage will apply to a non-applicable beneficiary (i.e., one who is not eligible for the coverage gap discount program) is $6,657.50 . up from $6,447.50 in 2011. For an applicable beneficiary (i.e., one who is eligible for the coverage gap discount program) it is $6,730.39 . up from 6,483.72.

Retiree Drug Subsidy

Increased cost threshold and cost limits will apply for sponsors who qualify for the retiree drug subsidy.

With the retiree drug subsidy payment equal to 28% of allowable prescription drug costs between the cost threshold and the cost limit, the maximum subsidy for each qualifying retiree will increase to $1,730.04 . up from $1,677.20 in 2011.

The new Standard Parameters are in the Announcement of Calendar Year (CY) 2012 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.220.2692, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2011, Deloitte.