NCPA - National Center for Policy Analysis

Medicare Coverage may Cause Companies to Drop Retirees' Drug Coverage

June 12, 2003

The compromise Senate bill to add prescription drug coverage to Medicare could cause companies to drop their prescription drug coverage for retirees, warn some big employers and labor unions.

Medicare doesn't pay for most outpatient drugs, but many big employers still do. The Senate bill doesn't factor in employer-provided insurance in calculating out-of-pocket drug expenses, making it difficult for a person to reach the maximum Medicare reimbursement level.

That means companies would pay those costs -- and thus be more likely to drop coverage.

  • Employer plans cover about 12 million of Medicare's 40 million beneficiaries, and are still the biggest source of seniors' drug coverage.
  • The Congressional Budget Office estimates that about three million Medicare beneficiaries would lose employer drug coverage under the Senate bill.

The new Medicare drug benefit ostensibly would pick up those people, but the coverage likely would be thinner than what employers commonly provide.

  • The Senate drug benefit would have people pay a $275 deductible, then receive 50 percent coverage from Medicare until their drug costs reach about $3,450.
  • Then, the reimbursements would stop until out-of-pocket drug costs -- not including employer contributions -- reach $3,700.
  • Medicare would cover 90 percent of a person's drug costs above that amount.

Sen. Jay Rockefeller (D-W.Va.) plans to offer an amendment in the Finance Committee that would allow employer contributions to count in the amount that triggers catastrophic coverage. It isn't clear how the amendment will fare.

Source: Sarah Lueck and Greg Hitt, "Bill May Hurt Private Drug Plans," Wall Street Journal, June 12, 2003.

For WSJ text (requires subscription),,SB105535497824534100,00.html


Browse more articles on Health Issues