Health Care Reform And Its Impact on The Retiree Drug Subsidy Program

For the thousands of plan sponsors that participate in the Retiree Drug Subsidy Program (RDS) there is a real sense of unknown regarding just how much impact health care reform will have on the RDS Program. This Program has been extremely beneficial to organizations since its creation, and although for some plan sponsors health care reform may require a second look at keeping the Program, for many the RDS Program will continue to assist in covering retirees’ prescription drugs.

Retiree Drug Subsidy was and still is an outstanding deal for many plan sponsors. When the Program was introduced in 2005, employers were able to be reimbursed by the federal government up to 28% of the costs for covered retiree drugs by the federal government. The goal of the Program was to encourage employers to keep their retirees on their own drug coverage plans rather than dump them off to the newly established Medicare Part D, which would have totally flooded the program and cause real problems. To sweeten the deal for employers, companies received the 28% subsidy tax free, and also were able to add it to their costs, potentially writing off 100 percent of pharmaceutical costs.

The issue that plan sponsors must now face is the new look of health care. Health care reform will create new challenges to those on the RDS Program when the Patient Protection and Affordable Care Act (PPACA) takes full effect in 2014. One of the ways that the government will be paying for some of the new changes under the reform is that organizations on RDS will no longer be able to receive subsidy money tax free. This leaves many employers asking themselves is it really worth keeping their retirees prescription drug plans covered under this health plan? The responsibility of the employer includes large amounts of paperwork and man hours put into the Program which may not be worth it after the reform takes full effect.

Plan sponsors that participate in the RDS Program must be aware of some facts when evaluating the direction they want to go regarding the Program. Municipalities and nonprofits are “tax exempt” organizations; theoretically this means these changes will have no effect on the 28% of reimbursements that they have been receiving. Also there have been large amounts of backlash against the reform since it was signed into law last March. Judges in many states have already ruled parts of it to be unconstitutional, and with the Republican Party taking over the House of Representatives, there is much speculation as to just what is going to happen in the future regarding health care reform. The best thing for RDS Program participants to do is stay informed. This Program has provided aid for the last 6 years and many organizations have already built the potential savings from the program into their projected budgets. It will be hard to say what will or won’t change in the coming months, but for many plan sponsors the RDS Program is still a great long term option for saving money.