As a Plan Sponsor employers have the following options:

• Do Nothing (maintain your current prescription drug plan)
• Apply for Tax-free Subsidy of 28%
• Become an Employer Prescription Drug Provider (PDP) or Medicare Advantage Prescription Drug (MA-PD)
• Contract with a PDP or MA-PD
• Arrange for Supplemental Coverage

Advantages and Disadvantages of Employer Options

Option I
Maintain the current plan without applying for Federal direct subsidy (i.e. - do nothing).

Advantages		Disadvantages
No disruption of benefits to retirees		No FASB reduction
No expense for actuarial services for Federal direct subsidy qualification		No Federal direct subsidy
		No third-party risk sharing

Option II
Obtain Federal Direct Subsidy by maintaining current plan that is actuarially equivalent to Medicare Part D or changing plan to be actuarially equivalent to Medicare Part D.

How The Subsidy Works
The purpose of the Subsidy is to maximize employer-based drug coverage and to minimize the costs to the government. The employer's Plan must be "Actuarially Equivalent" to The Medicare Part D benefit and 28% of the allowable costs are attributable to covered prescription drug costs. In 2006, the Subsidy will be:

• Between $251 (cost threshold) and $5,000 (cost limit)(Cost limit and threshold will be indexed after 2006)
• Maximum $1,330
• Estimated Average = $611
• Increase in value for employers subject to corporate income tax

Example: An estimated average subsidy of $611 equals almost $940 of taxable income for an employer at a 35% tax rate, conditional on the individual not enrolling in Medicare D.

Other Group Health Plan Sponsors (Section 2(16)(B) of ERISA) who provide a prescription drug benefit to retirees and therefore apply for the Subsidy include:

• Private Plans
• Federal, State or Local Governmental Plans
• Collectively Bargained Plans
• Church Plans

Advantages		Disadvantages
28% Federal direct subsidy		No third-party risk sharing (assuming self-funded)
Estimated to be $611 per participant, per year		Annual attestation requiring actuarial expense (testing expected to be extensive)
FASB reduction		Expense and business disruption for possible federal audit
Opportunity to change current plan to one that promotes greater retiree cost sharing		Timing of subsidy payments likely to lag behind need for benefit payments
Prospectively, no disruption of benefits to retirees (based on plan design)		Retirees who independently sign up for Medicare Part D are excluded from subsidy
		Accounting for retirees who sign up for Medicare Part D independently

Option III
Enroll retirees into Medicare Part D and provide supplemental plan Advantages.

Supplemental Coverage to Medicare Part D

Employers may offer supplemental drug coverage to Medicare Part D. NEBCO has developed a supplemental plan that compliments Medicare D by filling in the "Coverage Gap." The supplement is designed to enhance the retirees' Part D coverage and also serves to extend the catastrophic cap. The premium for the supplement does not count towards TrOOP, however the retirees' drug spend always does.

Employers can contract with PDPs (NEBCO, with its carrier partner, has applied to become a national PDP) and MA plans to provide "supplemental" benefits to retirees. In doing so, the employer may cover the entire cost of the basic Part D premium and the supplement or can share the cost with the beneficiary, or simply offer the supplement on a voluntary basis.

Advantages		Disadvantages
FASB reduction		No Federal direct subsidy
Can be funded or voluntary		Will need to assist retirees with Medicare Part D enrollment
Medicare Part D will be primary payor		Possible confusion for retirees
Third party risk taker (cost shift to PDP)
Benefits can be designed with limited disruption to retirees
Opportunity to change current plan to plan that promotes more retiree cost sharing
No additional actuarial expense
No annual attestation
Eliminate the most costly and volatile segment of your retiree health care program
Flexibility