Medicare Part D Retiree Drug Subsidy

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by Mary Jane Stern

With the overhaul of healthcare and a 2,000+ page document there are many items that have not made the “front page” yet.  It has been well publicized over the next 10 years the donut hole in Medicare Part D will be closed.

However, recent articles are talking about a tax loophole that could have companies dropping retiree prescription drug benefits and retirees would then have to join a Medicare Part D plan.

When the prescription drug bill was approved by Congress it included an annual subsidy per retiree to companies who agreed to maintain prescription benefits for their retirees.  To be eligible to receive the Retiree Drug Subsidy companies need to show they provide coverage that is at least equivalent to the standard Medicare Part D drug benefit or better.  It was a tax free subsidy to help companies reduce the cost of the plan.  Good deal for the companies and great for retirees as they didn’t have to worry about the donut hole.

This subsidy inclusion was also a tax exclusion (the loophole). The subsidy is not counted as taxable income to the employer.  According to White House Press Secretary Robert Gibbs, the change in how businesses account for the subsidy closed a loophole created in the Medicare Part D prescription drug benefit that allowed two tax write offs.

With the passage of health care reform and closing the loophole, the government estimates they will collect approximately $4.5 billion in new taxes over the next 10 years.

Companies are in the process of re-evaluating the effects of the Retiree Drug Subsidy they receive and it is estimated that approximately 2 million retires could lose their prescription benefits and move into Medicare Part D.

In 10 years when the “donut hole” is closed, Part D looks to be a promising prescription drug plan.  It will take time for this to happen, but effective in 2010, if you reach the donut hole, you will be entitled to $250 subsidy.  Next year, Big Pharma is offering 50% discounts on prescriptions when you reach the coverage gap.

There has been no announcement yet as to how you get your $250 subsidy, but as soon as that information is available we will let you.

For retirees who might lose their prescription benefits and have to move to a Part D plan, visit www.medicare.gov and review the plans available in your area.

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