The Medicare Prescription Drug, Improvement and Modernization Act of 2003

The Medicare Modernization Act (MMA) of 2003

The MMA made several changes to existing Medicare programs. It:

• began a new Medicare Part D drug benefit in 2006;
• established the creation of Health Savings Accounts;
• increased payments to Medicare HMOs (renamed Medicare Advantage Plans); and
• altered Part B coverage.

For those employers who plan to offer health coverage to retired employees, there are several options under the MMA.

Part B: Medical Insurance

Beginning in 2004, Part B deductibles increased. In 2005, Part B deductibles were indexed to Part B spending increases. The level of deductible is tied, in large part, to the economic standing of the retiree.

Part C:  Medicare Advantage Plans

• In an effort to promote Medicare participation by Health Management Organizations (HMOs), the MMA increased authorized payments to those organizations in 2004.
• Medicare payments were increased to Preferred Provider Organizations (PPOs), in 2006.
• Special demonstration markets are planned for 2010 to increase private market participation in Medicare,

Health savings accounts

The MMA authorized the creation of Health Savings Accounts (HSAs) in 2004. HSAs provide tax advantages for setting money aside for healthcare costs, but they must be combined with a high-deductible health insurance plan. HSAs must be started before the age of 65, and are often fully funded by employers. Employers can also offer plans where employees use pre-tax payroll deductions, or employees may choose to shop for their own HSA plans.

Part D: Creditable coverage

Beginning in 2006, the MMA authorized Medicare to begin subsidizing prescription medications. Employees could choose not to participate in Part D if they already received “creditable” prescription drug coverage. Employers who offered creditable prescription drug coverage to their retirees could receive a government subsidy of up to 28 percent of drug costs between $250 and $5000 per individual. Creditable coverage means the employer’s health plan must be at least as good as the Medicare plan.

The MMA requires employers to notify retirees on their plan’s status. This is important, because retirees can incur heavy penalties if they try to switch from a non-creditable plan to Medicare. Employees who switch from a creditable plan to Medicare Part D will not incur penalties.

Other changes to Medicare include drug discount cards, changes in drug coverage, increased coverage for low-income seniors, increased payments to rural healthcare providers, new claims processes and appeals processes, and different reporting requirements. Most of these changes will affect individual retirees, but not necessarily their employers.