December 1, 2004






I continue to receive questions from AUSWR retiree members about what the recent Medicare Prescription Drug Bill is going to do, many misbelieving it is going to take affect next year.  No, it will not take affect in year 2005.  It does not become effective until year 2006.  Many have asked:  What will be the effect of the new Medicare prescription drug coverage on Qwest's retiree group health plans?  Hopefully, the following information will prove helpful to those with questions about the subject matter.



On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“the Act”) which makes prescription drug coverage available to retirees through Medicare beginning in 2006.  The new prescription drug coverage, termed Part D, will be available to retirees eligible for Medicare Part A (coverage for inpatient hospital care) or enrolled in Part B (coverage for outpatient care) as of 2006 and is provided through commercial prescription drug plans or through Medicare Advantage — Prescription Drug plans.



When the law becomes into effect in 2006, annual premiums for Medicare Part D are estimated to be $420, or $35 per month.  The initial deductible is $250 per year. Once the deductible is met, Part D covers 75% of prescription costs until total prescription drug expenses for the year reach $2,250.  Then, there will be a “doughnut hole.”



The infamous "doughnut hole" will exist for prescription drug costs between $2,250 and $5,100.  In other words, the retiree enrolled in Medicare Part D will have to cover the cost of all prescription drug costing between $2,250 and $5,100.  Thus, by the time a retiree's drug expenses reach $5,100, the retiree will normally have incurred out of pocket expenditures of about $3,600.  In other words, if a retiree has drug expenses of $5,100, he or she will pay $3,600, and $1,500 will be paid by Medicare Part D.



Should the retiree's total prescription drug costs exceed $5,100 in one year, there will be catastrophic coverage to cover 95% of all costs over $5,100.



As the plan is presently proposed, Medicare Part D will have a list of drugs that are covered by the plan.  A retiree who fills a prescription for a drug that is not covered by the list of drugs covered by the plan must pay the entire cost associated with purchasing the drug out of pocket, and that cost will not count toward either the deductible or the threshold for catastrophic coverage.  Therefore, every retiree will need to be watchful that the prescribed drug is, indeed, covered by the plan, or, otherwise anticipate that expense being out of pocket and not reimbursed.



If you are a retiree who will become eligible for Medicare Part D on January 1, 2006, you can begin enrolling in Part D prescription coverage starting November 15, 2005, and you must do the enrollment by May 15, 2006, to avoid a penalty.  The initial enrollment period for retirees who become eligible on or after May 1, 2006, is going to be the same as the enrollment period for Part B.  You can expect to receive more information well before November 15, 2005.



So what might happen to Qwest sponsored benefits for Medicare eligible retirees?  The United States Department of Health and Human Services issued some proposed rules on August 3, 2004, and they allow group health plans, like the Qwest Health Care Plan, to do one of the following with regard to prescription drug coverage for retirees:



•    Qwest could maintain the status quo prescription drug coverage under the Qwest Health Care Plan in lieu of Medicare Part D coverage, so long as the status quo is at least equivalent to what Medicare Part D will provide, and Qwest can receive a 28% nontaxable subsidy reimbursement from Medicare for eligible annual gross prescription drug costs.  In order to receive subsidy payments, the Qwest Health Care Plan will need to attest that the benefits provided are at least actuarially equivalent to Meciare Part D and Qwest will need to follow certain procedures, such as those outlined in the Proposed Rules released on August 3, 2004;  or



•    Qwest could forgo the subsidy, thus requiring Post-1990 Retirees who are Medicare eligible to enroll in Medicare Part D.



We can expect to learn what Qwest is going to do no later than September 30, 2005, as that is the presently established deadline for Qwest to apply for the government subsidy.



But, what about the Pre-1991 Retirees who have an ironclad commitment of lifetime health care coverage?  In 1996, U S WEST memorialized a guarantee of lifetime health care coverage for Pre-1991 Retirees, Phelps v. U S WEST, Case No. 95-Z-2759, United States District Court for Colorado.  Your AUSWR team leaders made certain that the guarantee language would be binding upon all successor companies.  The guarantee is binding upon Qwest.  The guarantee covers "FDA-approved prescription drugs."  Qwest cannot renege on the guaranteed coverage for Pre-1991 Retirees, unless changes in the health care industry or markets, or a government mandate, prevents Qwest from carrying out the guarantee.  Please note there is nothing in the Medicare Prescription Bill that either mandates or requires Qwest to make a change.  Therefore, Qwest must maintain for Pre-1991 Retirees, at no additional cost, the same level of medical (including prescription drug) coverage that has been maintained in conformity with the commitment memorialized in 1996.