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Of course the other big factor on the horizon that will impact drug benefits is Medicare Part D. The Medicare Modernization Act takes effect Jan.1, 2006. In addition to giving a drug benefit to those age 65 and older, the legislation provides subsidies to organizations offering their own drug benefit for retirees, in order to encourage plan sponsors to continue this role.

However, only 19 percent of the current 43 million Medicare beneficiaries have an employer drug plan, not counting federal retirees. The new subsidy may slow corporate exodus from retiree drug benefits, which the new general Medicare benefit is likely to otherwise accelerate.

"They can maintain or set up their own plans if they want to apply for the government subsidy, or they can keep their benefit status as is. In some cases, they may be able to cut some drug benefits loose, depending on what their pension rules say. No one knows what road they will take."

The presumption, though, is that many companies still offering a drug benefit to past employees may sunset their plans, leaving their future retirees to resort to Medicare.

"Over time, employers' retiree drug costs will decrease because fewer employers will provide any type of drug benefit coverage to this group," predicts Dana H. Felthouse, vice president of marketing for the Pharmacy Benefit Management Institute, an independent, Tempe, Ariz.-based agency that studies PBMs.

October 1, 2005

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