42 U.S.C. § 1395w–132: Special rules for…

§1395w–132 Special Rules for Employer-sponsored Programs

Title 42 › CHAPTER 7 — SOCIAL SECURITY › SUBCHAPTER XVIII — HEALTH INSURANCE FOR AGED AND DISABLED › Part D — Voluntary Prescription Drug Benefit Program › subpart 3 — application to medicare advantage program and treatment of employer-sponsored programs and other prescription drug plans › § 1395w–132

Last updated Sep 23, 2026|Official source

Summary

The Secretary must pay a special subsidy to employers or unions that run qualifying retiree drug plans. The payment is 28% of the retiree drug costs that fall between a cost threshold and a cost limit for each qualifying covered retiree. For plan years that end in 2006 the threshold is $250 and the limit is $5,000; those amounts are indexed for later years. To get the subsidy, the plan sponsor must yearly attest that the plan’s drug benefits are at least as valuable as standard Part D coverage, keeping in mind that certain gap discounts are not counted (rules differ before 2025 and starting in 2025). Sponsors must keep records, allow audits, and give required disclosures. A qualifying covered retiree is a Part D eligible person who is covered by the employer retiree plan but not enrolled in a standalone prescription drug plan or MA–PD plan. Payments follow the same Part D payment and information rules. The law also lets plans set special premium rules and limit enrollment for people covered by employer retiree plans, to help federal Program plans offer retiree drug benefits through those plans. Employment-based retiree health coverage: employer-provided retiree health insurance. Sponsor: the employer or plan sponsor who runs the group plan. Group health plan: includes plans run by federal or state governments, union-negotiated plans, and church plans.

Title 42, §1395w–132

The Public Health and Welfare, Source: USLM XML via OLRC

(a)Subsidy payment

(1)In general

The Secretary shall provide in accordance with this subsection for payment to the sponsor of a qualified retiree prescription drug plan (as defined in paragraph (2)) of a special subsidy payment equal to the amount specified in paragraph (3) for each qualified covered retiree under the plan (as defined in paragraph (4)). This subsection constitutes budget authority in advance of appropriations Acts and represents the obligation of the Secretary to provide for the payment of amounts provided under this section.

(2)Qualified retiree prescription drug plan defined

For purposes of this subsection, the term “qualified retiree prescription drug plan” means employment-based retiree health coverage (as defined in subsection (c)(1)) if, with respect to a part D eligible individual who is a participant or beneficiary under such coverage, the following requirements are met:

(A)Attestation of actuarial equivalence to standard coverage

The sponsor of the plan provides the Secretary, annually or at such other time as the Secretary may require, with an attestation that the actuarial value of prescription drug coverage under the plan (as determined using the processes and methods described in section 1395w–111(c) of this title) is at least equal to the actuarial value of standard prescription drug coverage, not taking into account the value of— (i)

(ii)for 2025 and each subsequent year, any discount provided pursuant to section 1395w–114c of this title.

(B)Audits

The sponsor of the plan, or an administrator of the plan designated by the sponsor, shall maintain (and afford the Secretary access to) such records as the Secretary may require for purposes of audits and other oversight activities necessary to ensure the adequacy of prescription drug coverage and the accuracy of payments made under this section. The provisions of section 1395w–102(d)(3) of this title shall apply to such information under this section (including such actuarial value and attestation) in a manner similar to the manner in which they apply to financial records of PDP sponsors and MA organizations.

(C)Provision of disclosure regarding prescription drug coverage

The sponsor of the plan shall provide for disclosure of information regarding prescription drug coverage in accordance with section 1395w–113(b)(6)(B) of this title.

(3)Employer and union special subsidy amounts

(A)In general

For purposes of this subsection, the special subsidy payment amount under this paragraph for a qualifying covered retiree for a coverage year enrolled with the sponsor of a qualified retiree prescription drug plan is, for the portion of the retiree’s gross covered retiree plan-related prescription drug costs (as defined in subparagraph (C)(ii)) for such year that exceeds the cost threshold amount specified in subparagraph (B) and does not exceed the cost limit under such subparagraph, an amount equal to 28 percent of the allowable retiree costs (as defined in subparagraph (C)(i)) attributable to such gross covered prescription drug costs.

(B)Cost threshold and cost limit applicable

(i)In general

Subject to clause (ii)—

(I)the cost threshold under this subparagraph is equal to $250 for plan years that end in 2006; and

(II)the cost limit under this subparagraph is equal to $5,000 for plan years that end in 2006.

(ii)Indexing

The cost threshold and cost limit amounts specified in subclauses (I) and (II) of clause (i) for a plan year that ends after 2006 shall be adjusted in the same manner as the annual deductible and the annual out-of-pocket threshold, respectively, are annually adjusted under paragraphs (1) and (4)(B) of section 1395w–102(b) of this title.

(C)Definitions

For purposes of this paragraph: (i) Allowable retiree costs

(ii)Gross covered retiree plan-related prescription drug costs

For purposes of this section, the term “gross covered retiree plan-related prescription drug costs” means, with respect to a qualifying covered retiree enrolled in a qualified retiree prescription drug plan during a coverage year, the costs incurred under the plan, not including administrative costs, but including costs directly related to the dispensing of covered part D drugs during the year. Such costs shall be determined whether they are paid by the retiree or under the plan.

(iii)Coverage year

The term “coverage year” has the meaning given such term in section 1395w–115(b)(4) of this title.

(4)Qualifying covered retiree defined

For purposes of this subsection, the term “qualifying covered retiree” means a part D eligible individual who is not enrolled in a prescription drug plan or an MA–PD plan but is covered under a qualified retiree prescription drug plan.

(5)Payment methods, including provision of necessary information

The provisions of section 1395w–115(d) of this title (including paragraph (2), relating to requirement for provision of information) shall apply to payments under this subsection in a manner similar to the manner in which they apply to payment under section 1395w–115(b) of this title.

(6)Construction

Nothing in this subsection shall be construed as—

(A)precluding a part D eligible individual who is covered under employment-based retiree health coverage from enrolling in a prescription drug plan or in an MA–PD plan;

(B)precluding such employment-based retiree health coverage or an employer or other person from paying all or any portion of any premium required for coverage under a prescription drug plan or MA–PD plan on behalf of such an individual;

(C)preventing such employment-based retiree health coverage from providing coverage—

(i)that is better than standard prescription drug coverage to retirees who are covered under a qualified retiree prescription drug plan; or

(ii)that is supplemental to the benefits provided under a prescription drug plan or an MA–PD plan, including benefits to retirees who are not covered under a qualified retiree prescription drug plan but who are enrolled in such a prescription drug plan or MA–PD plan; or

(D)preventing employers to provide for flexibility in benefit design and pharmacy access provisions, without regard to the requirements for basic prescription drug coverage, so long as the actuarial equivalence requirement of paragraph (2)(A) is met.

(b)Application of MA waiver authority

The provisions of section 1395w–27(i) of this title shall apply with respect to prescription drug plans in relation to employment-based retiree health coverage in a manner similar to the manner in which they apply to an MA plan in relation to employers, including authorizing the establishment of separate premium amounts for enrollees in a prescription drug plan by reason of such coverage and limitations on enrollment to part D eligible individuals enrolled under such coverage, and shall be applied in a manner to facilitate the offering of prescription drug benefits under a Program plan under section 8903c of title 5, as required under subsection (h)(2) of such section, through employment-based retiree health coverage through—

(1)a prescription drug plan; or

(2)contracts between such a Program plan and the PDP sponsor of such a prescription drug plan..

(c)Definitions

For purposes of this section: (1) Employment-based retiree health coverage

(2)Sponsor (3) Group health plan

The term “sponsor” means a plan sponsor, as defined in section 1002(16)(B) of title 29, in relation to a group health plan, except that, in the case of a plan maintained jointly by one employer and an employee organization and with respect to which the employer is the primary source of financing, such term means such employer.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The Internal Revenue Code of 1986, referred to in subsec. (c)(3)(C), is classified generally to Title 26, Internal Revenue Code.

Amendments

2022—Subsec. (a)(2)(A). Pub. L. 117–169 inserted dash after “the value of” and “(i) for years prior to 2025,” before “any discount” and added cl. (ii). Subsec. (b). Pub. L. 117–108 inserted before period at end “, and shall be applied in a manner to facilitate the offering of prescription drug benefits under a Program plan under section 8903c of title 5, as required under subsection (h)(2) of such section, through employment-based retiree health coverage through—” and pars. (1) and (2). 2010—Subsec. (a)(2)(A). Pub. L. 111–152 inserted before period at end “, not taking into account the value of any discount or coverage provided during the gap in prescription drug coverage that occurs between the initial coverage limit under section 1395w–102(b)(3) of this title during the year and the out-of-pocket threshold specified in section 1395w–102(b)(4)(B) of this title”.

Statutory Notes and Related Subsidiaries

Study on Employment-Based Retiree Health Coverage Pub. L. 108–173, title I, § 111, Dec. 8, 2003, 117 Stat. 2174, provided that: “(a) Study.—The Comptroller General of the United States shall conduct an initial and final study under this subsection [probably should be this section] to examine trends in employment-based retiree health coverage (as defined in [sic] 1860D–22(c)(1) of the Social Security Act [42 U.S.C. 1395w–132(c)(1)], as added by section 101), including coverage under the Federal Employees Health Benefits Program (FEHBP), and the options and incentives available under this Act [see Tables for classification] which may have an effect on the voluntary provision of such coverage. “(b) Content of Initial Study.—The initial study under this section shall consider the following:“(1) Trends in employment-based retiree health coverage prior to the date of the enactment of this Act [Dec. 8, 2003]. “(2) The opinions of sponsors of employment-based retiree health coverage concerning which of the options available under this Act [see Tables for classification] they are most likely to utilize for the provision of health coverage to their medicare-eligible retirees, including an assessment of the administrative burdens associated with the available options. “(3) The likelihood of sponsors of employment-based retiree health coverage to maintain or adjust their levels of retiree health benefits beyond coordination with medicare, including for prescription drug coverage, provided to medicare-eligible retirees after the date of the enactment of this Act. “(4) The factors that sponsors of employment-based retiree health coverage expect to consider in making decisions about any changes they may make in the health coverage provided to medicare-eligible retirees. “(5) Whether the prescription drug plan options available, or the health plan options available under the Medicare Advantage program, are likely to cause employers and other entities that did not provide health coverage to retirees prior to the date of the enactment of this Act to provide supplemental coverage or contributions toward premium expenses for medicare-eligible retirees who may enroll in such options in the future. “(c) Contents of Final Study.—The final study under this section shall consider the following:“(1) Changes in the trends in employment-based retiree health coverage since the completion of the initial study by the Comptroller General. “(2) Factors contributing to any changes in coverage levels. “(3) The number and characteristics of sponsors of employment-based retiree health coverage who receive the special subsidy payments under section 1860D–22 of the Social Security Act [42 U.S.C. 1395w–132], as added by section 101, for the provision of prescription drug coverage to their medicare-eligible retirees that is the same or greater actuarial value as the prescription drug coverage available to other medicare beneficiaries without employment-based retiree health coverage. “(4) The extent to which sponsors of employment-based retiree health coverage provide supplemental health coverage or contribute to the premiums for medicare-eligible retirees who enroll in a prescription drug plan or an MA–PD plan. “(5) Other coverage options, including tax-preferred retirement or health savings accounts, consumer-directed health plans, or other vehicles that sponsors of employment-based retiree health coverage believe would assist retirees with their future health care needs and their willingness to sponsor such alternative plan designs. “(6) The extent to which employers or other entities that did not provide employment-based retiree health coverage prior to the date of the enactment of this Act [Dec. 8, 2003] provided some form of coverage or financial assistance for retiree health care needs after the date of the enactment of this Act. “(7) Recommendations by employers, benefits experts, academics, and others on ways that the voluntary provision of employment-based retiree health coverage may be improved and expanded. “(d) Reports.—The Comptroller General shall submit a report to Congress on—“(1) the initial study under subsection (b) not later than 1 year after the date of the enactment of this Act [Dec. 8, 2003]; and “(2) the final study under subsection (c) not later than January 1, 2007. “(e) Consultation.—The Comptroller General shall consult with sponsors of employment-based retiree health coverage, benefits experts, human resources professionals, employee benefits consultants, and academics with experience in health benefits and survey research in the development and design of the initial and final studies under this section.”