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Medicare Part D Subsidy Audits/RDS Review
Session 45

Moderator: Stacey Powell Litka, JPMorgan
Presenters: Geoffrey Kuhn, JPMorgan; Robert Schmall, Centers for Medicare & Medicaid Services
Recorder: Gary Koscielny, Cynomys, Inc.

Medicare Part D became operational in January, 2006 and created an entirely new range of considerations in the design and administration of retiree benefits, many of which have actuarial tie-ins. The most direct is the Retiree Drug Subsidy (RDS) which requires an actuarial certification as part of the application process. Session 45 began with a review of experience to date regarding the RDS and highlighted current issues in the RDS process.

Plan sponsors were presented with four options in 2006: take the RDS from Medicare, purchase a Prescription Drug Plan (PDP) from a vendor (or sponsor their own), convert their plan to a wrap around a Medicare PDP or discontinue coverage altogether. Over 80% of employers chose to take the RDS from Medicare in 2006 and again in 2007. This was and is the easiest option to choose and provides significant benefits. The RDS works out to about 20% of drug costs and is tax free to the sponsor. Surveys indicate, however, that sponsors expect to make different choices in the future, perhaps as other options become more accessible. This seems particularly likely among governments and other non taxpaying entities for which the tax free nature of the subsidy provides no advantage. The average subsidy was around $600 although many in the audience claimed to see much lower amounts for many of their clients.

The RDS has created the need to develop a new set of administrative responsibilities for plan sponsors and actuaries are well positioned to become more intimately involved. There is the attestation, of course, but the RDS requires knowledge of the RDS regulations along with employer plan design, costs, etc. as well as a more generic ability in working with data and an ability to communicate complex technical issues to different audiences. Consequently, actuaries can help beyond the attestation by assisting with the application, reviewing cost reports and eligibility and developing an overall implementation plan for the client.

The RDS process is moderately complex since it involves the plan sponsor, the PBM, CMS and possibly a separate eligibility provider. A number of issues have emerged including:

• Lack of internal resources (such as time or expertise) from the sponsor
• Concerns over quality of data from the vendor
• Eligibility vendors not processing all CMS files, or processing them in the wrong order
• Claim vendors improper identification of qualifying covered retirees, excluding rebate estimates
• RDS blackout periods.

Actuaries can help by providing understanding and coordination among the different players, validating the transfer points, and validating independent calculations. Challenges in eligibility processing include understanding the response and notification files provided by CMS, including reasons for exclusion and how to respond. Claims processing presents a challenge in attempting to match claims against only eligible retirees, adjusting them for rebates, and identifying and excluding Part B drugs using one of the 6 options permitted by CMS.

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