Drug benefits shift for retirees
Co. will save $170 million by using a new Medicare plan to shift
some expenses for retirees' prescriptions to taxpayers.
The change also will provide savings to retirees.
Many retirees found out last week that their monthly premiums for health coverage
will drop. The decline is expected to amount to more than 50 percent, to $60
The Waltham defense contractor said that under its new benefits package, retirees
will receive prescription coverage primarily through the new Medicare drug plan,
which is scheduled to take effect on Jan. 1.
The company will provide supplemental coverage, filling gaps in the government
''There's a reduction in the cost because somebody else is paying for the drug
benefits," said Ched Miller, the company's manager of retiree benefits.
''Not the retirees, and not Raytheon."
The complex new benefit, known as Medicare Part D, gives companies many options
for offering drug insurance to retirees. Some, like Raytheon, are opting to
let the federal government assume much of that obligation.
This has caused some Massachusetts officials to question the 2003 legislation
that created the drug benefit.
''Is this whole program about enabling companies to reduce costs, or is it
about providing drug relief to people?" asked William F. Galvin, the secretary
of state. ''If it's the government's policy to encourage employers to ditch
coverage, it's not what we had in mind."
Galvin said the benefit has generated a ''windfall" for Raytheon.
That wasn't supposed to happen. When details of the drug plan were released
this year, Medicare officials spoke of a need to create an incentive for employers
to continue providing drug coverage for retirees -- a benefit many are eliminating
to save money.
Statistics on how many firms offer drug coverage for retirees are not available,
but healthcare consultants say that most companies that offer health coverage
also provide some sort of drug insurance.
Among companies with more than 200 employees, 66 percent provided retiree healthcare
benefits in 1988, according to surveys cited by Medicare documents. In 2004,
only 36 percent provided such benefits, and only 5 percent of firms with fewer
than 200 employees offered health benefits.
To help prevent companies from dropping drug benefits, the federal law includes
$71 billion over eight years in subsidies to employers. Officials at the Centers
for Medicare and Medicaid Services, which oversees the new drug plan, said they
expected that most employers who offer retiree drug benefits would use the subsidies
to maintain coverage.
Mark Hamelburg, director of the employer policy and operations group at the
centers, said that while it is too early to say how most companies have responded,
surveys indicate that many will use the government subsidies. But the law also
permits them to move the bulk of their drug coverage to Medicare, he said.
''It provides relief to employer policies," he said.
Barry Gilman, a principal at Mercer Health & Benefits in Boston, said most
companies that still provide retirement healthcare benefits will continue coverage
by making use of the government subsidy.
Others, like Raytheon, have put into place plans that supplement Medicare;
still others have eliminated drug coverage altogether, leaving retirees dependent
on the government benefit.
''The question is whether an employer looks at this as a way to reduce their
obligations or as a way to continue providing their benefit with a government
subsidy," Gilman said.
Miller, the retiree benefits manager, said Raytheon had considered accepting
an annual government subsidy of about $670 per beneficiary, and continuing its
drug coverage under a self-administered plan.
But the company, he said, was concerned about the complexities of such an undertaking.
It was easier to rely on the government program, supplemented with a company
plan to fill what is known as the ''doughnut hole" -- the annual spending
range of $2,250 to $5,100 not covered by the plan.
Raytheon will cover 80 percent of the drug costs within that ''doughnut hole."
Of 60,000 retirees who receive pension benefits, 24,000 are eligible for a
plan with drug coverage.
The change is a boon to retirees, said Bruce Nogueira, vice president of benefits
for the Association of Raytheon Retirees.
''In general, people will save money," he said, even though they will
be paying an additional premium for the Medicare Part D drug plan. Some plans
in Massachusetts feature premiums that amount to less than $8 a month.
But Nogueira said retirees are faced with choosing from among dozens of options.
''The implementation is going to be a nightmare," Nogueira said. ''Nobody
Jeffrey Krasner can be reached at email@example.com.