Lawmakers were concerned that adding a prescription drug benefit to Medicare would encourage employers to drop prescription drug coverage to the beneficiaries who receive prescription drugs through retiree health plans. In an effort to avoid a shift in older people who rely on public insurance instead of private insurance for their prescription drug coverage, Congress included in the MMA a tax-free subsidy to encourage employers to maintain prescription drug coverage. While the ACA eliminates the tax deduction, the subsidy remains in place. The amount of the subsidy is based on the prescription drug costs of individuals who remain with the employer’s plan and do not enroll in Part D. In 2020, approximately 1.3 million beneficiaries purchased coverage through employer retiree plans and employers received a subsidy of 28% of their costs between

$445 and $9200 per retiree. Employers receive an average of

$575 per beneficiary from this subsidy (KFF, 2021e).

Is this subsidy a good idea? Is the proper role of government to pay private companies to maintain insurance coverage? If so, should it occur for other benefits? Do you have a preference regarding giving incentives for private entities to provide insurance coverage versus the government financing the coverage directly?