March 23, 2006

Q: My wife and I currently have drug coverage through my former employer. With the start of the Medicare drug benefit, can my former employer eliminate drug coverage for us? Are there any federal laws preventing this from happening? --Tom

Dear Tom:

Today, about one in three seniors relies on employer-sponsored retiree health benefits to supplement Medicare. Retiree health plans typically cover prescription drug and other valuable benefits, and the drug coverage offered by employers tends to be more generous than the standard Medicare drug benefit offered by Medicare prescription drug plans.

Employers are not generally required to provide health benefits to workers or retirees, unless these benefits are protected under contract. As a result, employers generally have the option to terminate retiree health benefits at their discretion, including prescription drug coverage. You may want to do some research to see if your company-sponsored benefits are legally protected under a contract, and if so, for how long.

During the debate over the Medicare drug law in 2003, lawmakers were concerned that employers would terminate coverage as the new drug benefit went into effect. The share of employers offering retiree health coverage has already declined quite a bit over the past 15 to 20 years. To discourage further terminations, the law included a subsidy for employers that continue to provide prescription drug coverage to their Medicare-eligible retirees.

There is some good news, at least for 2006. According to recent surveys and government statistics, most employers are maintaining prescription drug coverage for their Medicare-eligible retirees. Over the longer term, it is less clear whether employers will maintain benefits for their retirees or choose to supplement the new Medicare drug benefit. 

You are right to stay on top of this issue. Each year, employers are likely to revisit the question of whether to maintain, modify, or drop retiree health benefits, and it is important to understand how you will be affected by these decisions.

This column was prepared by the Kaiser Family Foundation, an independent, non-profit private foundation based in Menlo Park, Calif., that is not affiliated with the Kaiser Permanente health plan. Do you have questions about the new Medicare drug benefit? Send your questions to Medicare Q and A. The Kaiser Family Foundation. 1330 G St., NW. Washington, DC  20005 or MedicareQ@kff.org. 

(c) 2006, Knight Ridder/Tribune News Service.

Distributed by Knight Ridder/Tribune Information Services.