As of January 1, 2006, Medicare Now Offers a Major New Prescription Drug Benefit Known as Medicare Part D, a Reform That Will Have Significant Implications for Employer-Sponsored Retiree Health Benefits.

DUBLIN, Ireland -- Research and Markets (http://www.researchandmarkets.com/reports/c32116) has announced the addition of Employers Role in the U.S. Health Care System: Part 2-The Medicare Population to their offering.

In the United States, employers have traditionally been a very important source of retiree health insurance, particularly for prescription drug benefits. However, increasing costs have forced many employers--especially smaller companies--to limit or even abandon retiree health benefits. In this environment, the Medicare program is likely to play a growing role in health care provision for senior citizens in the United States. Beginning January 1, 2006, Medicare will offer a major new prescription drug benefit known as Medicare Part D, a reform that will have significant implications for employer-sponsored retiree health benefits. In Part 1 of this two-part series on employers' evolving role in the U.S. health care system, this report examines how employers contribute to the health care of the nonelderly.

In this Decision Resources report, attention is turned to the Medicare population. The report examines past and present health care coverage for retirees and the increasing cost of retiree health insurance. It discusses employer-sponsored pharmacy benefits and the potential impact of the Medicare prescription drug benefit, and concludes by assessing the implications for the pharmaceutical industry.

Business Implications

--The Medicare Beneficiary Survey 2002 found that 35% of Medicare beneficiaries who had supplemental health insurance received this coverage from their former employers, a far higher percentage than for any other source of supplemental insurance. However, the number of companies offering retiree health benefits has been in steady decline since the late 1980s. One survey found that the percentage of large companies providing retiree health benefits fell from 66% in 1988 to 33% in 2005. Another recent survey found that only a minority of employers intended to offer any kind of retiree health benefits to new recruits.

--In recent years, employers have adopted increasingly complex formulary designs as a means to encourage their retirees to take greater responsibility for the cost of their medications. One survey found that 58% of employers used a three-tier formulary: generics were typically in the first tier, preferred branded medicines in the second tier, and nonpreferred branded medicines in the third tier. The use of multitier formularies is likely to accelerate in coming years. Four percent of employers indicated that they were very likely, and 10% somewhat likely, to implement a formulary of four or more tiers in 2005.

--The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 will offer employers and unions a range of financial incentives to provide generous pharmacy benefits to their retirees. Surveys suggest that most employers that provide retiree health benefits will opt for a 28% subsidy of drug costs in return for offering retirees a drug benefit that is at least actuarially equivalent to the prospective new Medicare Part D benefit. In 2006, the maximum subsidy per beneficiary will be $1,330, and subsidies are expected to average $668. The Government Accountability Office calculates that, in 2006, 74.7% of prescription drug expenditures by retired Medicare beneficiaries and their employers will be eligible for the Medicare subsidy.

--In evaluating the Medicare drug benefit, it is important to bear in mind that this benefit is potentially less generous than most employer drug benefits for retirees. Separate premiums for prescription drugs, a pharmacy deductible, and a sizable coverage gap-- key features of the Medicare drug benefit--are still relatively uncommon in employer-sponsored pharmacy benefit plans. In addition, Medicare Part D formularies could be much more restrictive than most employers' formularies. Pharmaceutical Research and Manufacturers of America (PhRMA), the U.S. industry association, has noted that a formulary that excludes 41 of the 50 drugs most commonly prescribed to seniors could comply with the guidelines for Medicare Part D formularies. The Medicare prescription drug benefit will also permit the use of stringent cost-containment measures (e.g., multitier formularies, prior authorization, step therapy protocols, generics substitution, quantity limits).

This report covers the following key topics:

--Profile of the Medicare Population

--Past and Present Health Care Coverage for Retirees

--Increasing Cost of Retiree Health Insurance

--Prescription Drug Benefits

--Medicare Prescription Drug Benefit

--How It Works

--Employers' Response

--Outlook and Implications for the Pharmaceutical Industry

For more information visit http://www.researchandmarkets.com/reports/c32116