Guest Article

(From the June 25, 2007 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

CMS Proposes Changes to Due Date for Applying for Medicare Part D Retiree Drug Subsidy

The Centers for Medicare and Medicaid Services (CMS) on May 25, 2007 issued proposed regulations that would change the application deadline for employers seeking the 28 percent retiree drug subsidy (RDS). The current "90 day before the beginning of the plan year" deadline would be replaced by a standard permitting the agency to establish an "end-of-month" deadline that CMS says "would be administratively simpler for both plan sponsors and CMS to track." CMS will accept comments on the proposed regulations through July 24, 2007.

Background on RDS

In general, employers that provide prescription drug benefits for retirees may be eligible for the 28 percent RDS, which Congress enacted to discourage employers from dropping retiree prescription drug benefits when Medicare Part D became available in January 2006. The subsidy is available only if the employer's retiree prescription drug benefit is actuarially equivalent to the Part D benefit.

There is a two-part test for actuarial equivalence: a gross value test and a net value test. Basically, the gross value test compares the expected amount of paid claims under the employer's plan with Medicare Part D, and the net value test compares the value of the two plans after retirees' premium contributions have been taken into account by subtracting that amount from the gross value.

Employers that are eligible for the RDS may claim it only with respect to "qualifying covered retirees" (QCRs). A QCR is a Part D eligible individual who is enrolled in an employer's prescription drug plan and who is not enrolled in Medicare Part D.

RDS Application Deadline

As noted, employers must apply for the RDS at least 90 days before the beginning of its plan year unless an extension is requested and granted. For example, the application deadline for 2007 calendar year plans was October 2, 2006. The proposed regulations would change the 90-day deadline to "a date specified by CMS in published guidance." This would give CMS "the discretion to specify an end-of-month deadline in the future through guidance." Thus, instead of an October 2 deadline for calendar year plans, CMS might designate September 30 as the deadline for submitting the RDS application. Additionally, the change would give CMS "the flexibility to take into account operational systems changes in determining the [RDS] application deadline, while providing adequate advance notice to plan sponsors and their advisers."

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, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Laura Morrison 202.879.5653, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2007, Deloitte.