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How Retiree Coverage Works with Medicare Prescription Drug Coverage (Part D)
Note: The information on this page only applies to retiree
coverage. Different rules and options apply to people who are
actively working.
Everyone with Medicare is eligible for Medicare prescription drug coverage, including retirees and their family members covered by employer- or union-sponsored health plans that offer prescription drug coverage.
Medicare works with plan sponsors to offer a variety of options for people with Medicare who have retiree drug coverage. Medicare also provides incentives to help employer and union plan sponsors continue to offer drug coverage to their Medicare-eligible retirees.
Joining a Medicare drug plan could affect a person’s current drug and/or health (doctor and hospital) retiree coverage.
ALL people with retiree coverage should make sure they understand how that coverage works with Medicare before deciding whether to join a Medicare drug plan.
Some people may not be able to drop their retiree prescription drug coverage to join a Medicare drug plan unless they drop their retiree health (doctor and hospital) coverage. If they do that, they and any family members covered by the plan may not be able to get that coverage back, should they wish to return to their retiree plan.
:: Compare Medicare Prescription Drug Plans (Part D)
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Group health plan sponsors have different options.
All employer and union plans are different, but in general, they offer the following options:
- Payment of part or all of a plan’s retirees’ Medicare drug plan premiums.
Employers and unions may choose this option regardless of whether they also provide retiree drug coverage.
- Customized coverage, consisting of Medicare drug coverage with additional retiree prescription drug coverage.
The employer or union buys drug coverage from a Medicare drug or health plan, or contracts directly with Medicare to become a Medicare drug plan itself. The retiree gets both Medicare drug coverage and retiree supplemental coverage from the same plan. To get the additional coverage, the retiree must join the Medicare drug or health plan the employer or union chooses.
- A retiree plan that provides drug coverage instead of coverage under a Medicare drug plan.
Usually provided as part of retiree medical coverage that pays after Medicare pays, retirees with this drug coverage generally do not join a Medicare drug plan because their retiree drug coverage is creditable (as good as or better than Medicare drug coverage). Also, some retiree plans may cancel a retiree’s medical and drug coverage if the retiree joins a Medicare drug plan.
Some of the group plan structures described above may also include split retiree-family enrollment, where spouses and dependents are allowed to continue getting coverage from the retiree plan even when the retiree joins a Medicare drug plan. People should check with their plan administrator to learn whether this is an option.
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Where can people with Medicare learn about their specific options?
The best source of information about a person’s retiree coverage is their employer or union, or the plan that administers their coverage.
Medicare doesn’t have information about a person’s individual employer or union-based coverage, or details about how it will work with Medicare drug coverage. Retirees should look for materials from their employer or union about their current coverage, and read them carefully. If retirees have questions, they should visit the plan’s Web site, or call the phone number in the communications materials. If no phone number is listed, they should call their plan or benefits administrator, or call the office that answers questions about their benefits.
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Employers must tell whether coverage is "creditable."
Unless they sponsor a Medicare drug plan, all employer and union drug plan sponsors must tell all people eligible for Medicare (including active workers, disabled workers, people on COBRA, and retirees and their dependents) whether their current drug coverage is "creditable." Creditable prescription drug coverage is drug coverage that is expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage. If a person has "creditable coverage" and is happy with it, he or she generally does not need to join a Part D plan, since Part D coverage would duplicate what he or she already has.
Medicare-eligible retirees need to know whether their non-Medicare drug coverage is creditable. If they have creditable prescription drug coverage, they can wait to join a Medicare drug plan later and not pay a penalty, as long as they don’t go without creditable prescription drug coverage for 63 continuous days or longer. Plan sponsors can put the creditable prescription drug coverage disclosure in with other plan materials, but they must give this information at least once each year and upon request.
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Should people keep retiree coverage if they qualify for Extra Help?
People with limited income and resources may qualify for Extra Help paying for Medicare drug coverage, even if they already have creditable retiree drug coverage. With Extra Help, Medicare drug coverage may pay more drug costs than retiree coverage, so it may make sense for people who qualify for Extra Help to join a Medicare drug plan. However, people should remember that before they make any decisions, they need to know how their retiree coverage (including any non-drug health coverage) will change if they join a Medicare drug plan.
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Some retirees with Medicare and Medicaid are automatically enrolled in a Medicare drug plan.
People who qualify for both Medicare and full Medicaid benefits automatically qualify for Extra Help. These people will be automatically enrolled in a Medicare drug plan unless they have chosen a plan on their own, they have opted out of auto-enrollment, or their employer is getting the Retiree Drug Subsidy.
People who will be automatically enrolled in a Medicare drug plan will get a yellow letter from Medicare (CMS Product No. 11154 or 11429) letting them know which plan they’ll be enrolled in and explaining their options. These retirees should make sure they understand how Medicare drug coverage will affect their current retiree drug and health coverage.
If an employer or union plan is getting the Retiree Drug Subsidy (RDS) from CMS, the retiree will NOT be automatically enrolled in a Medicare drug plan. These retirees will get a letter on white paper from Medicare (CMS Product No. 11334) letting them know that they qualify for Extra Help and explaining their options. They may want to consider whether they’ll get better coverage with their retiree plan or by joining a Medicare drug plan.
You can get an idea of when to expect to receive the above letters by reviewing the CMS guide to LIS mailings.
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Opting out of automatic enrollment.
If a person who was automatically enrolled in a Medicare drug plan wants to disenroll from that plan, they can call 1-800-MEDICARE (1-800-633-4227).
TTY users should call 1-877-486-2048. They should tell the customer service representative that they decline Medicare drug plan enrollment. People with Medicare can also permanently opt out of auto-enrollment by calling the telephone number above.
:: Compare Medicare Prescription Drug Plans (Part D)
Plan sponsor information about the Retiree Drug Subsidy Program can be found at www.rds.cms.hhs.gov.
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