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Retiree Drug Subsidy (RDS) vs Employer Group Waiver Plans (EGWP)

With all the recent healthcare reform intiatives, EGWP is becoming the most cost-effective way for your company to provide its retiring workforce with retiree prescription drug coverage. An EGWP, colloquially known as an “egg whip” is an option with group Medicare Part D prescription drug plans offered to retirees who were promised prescription drug coverage as part of their Other Post-Employment Benefits (OPEB). Benefit solution companies such as Benistar contract their medical insurance with the Centers for Medicaid and Medicare Services (CMS) to serve as a Medicare Part D Plan Sponsor and maintain compliance with CMS regulations in regards to retiree Medicare Part D prescription drug plans. Using a Medicare Part D subsidy or discount will reduce the fully insured premium. EGWP don’t require you to file for a subsidy for the group sponsor.

 

Key Information on EGWP

EGWPs are ususally administered through a pharmacy benefit manager or an insurer that contracts with the Centers for Medicare and Medicaid Services (CMS) directy for their medical benefits, such as Benistar. There are plan options available that help close what is known as the doughnut hole, or the inevitable gap in retiree medical benefits coverage that seniors run into every year. Under an EGWP there are three substantial discount programs and subsidies available that drastically lower the cost of prescriptions drugs for plan sponsors and their group members.

  1. The Coverage Gap Discount Program – Gives a 50% discount on brand-name drugs when members fall into the doughnut hole, or the Medicare Part D coverage gap.
  2. CMS Direct Subsidy – Based on risk scores calculated by Medicare, per member subsidies of approximately $500 are given out annually. This subsidy alone is more times than not equal to the amount plan sponsors receive from the RDS Subsidy.
  3. Catastrophic Insurance – The highest utilizers of Medicare are provided 80% reinsurance.

In 2003, the Medicare Part D law was passed that took effect in 2006. The U.S. federal government created two methods that gave impressive tax incentives and subsidies to keep retirees covered on their prescription drug plans. Under the Retiree Drug subsidy program, the government covered up to 28% of the Medicare-eligible retirees maintenance drug program (MDP) expenses to the participating programs directly. RDS subsidies were offered tax free to the employer.

 

Changes in RDS That Make EGPW’s The Best Option

In 2013, the Patient Protection and Affordable Care Act (PPACA) adversely affected the original Retiree Drug Subsidy (RDS) for self-funded employers. The PPACA wiped out the full benefits of the tax deduction available for retiree drug expenses in January of 2013. This caused self-funded companies offering retiree drug benefit plans to see a significant increase in cost. EGWP solutions became a much more desirable option for employers as it greatly decreases administrative costs while at the same time increasing the per participant contribution substantially.

Governmental organizations receive additional accounting benefits under EGWP programs. The savings from an EGWP are reflected in the current year liability calculation. Under the RDS subsidy program, all projected future reimbursements from RDS cannot be included. Accounting is affected positively from the savings involved for GASB 43/45.

Contact Benistar for more information on EGWP and how it can benefit your organization and its retiring employees. For inquiries on our services and pricing, contact us at retireesolutions@benistar.com.

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