CMS Pub. 100-18, ch. 12, § 20.12.1

Low-Income Premium Subsidy Pass Through Requirements

PDP sponsors offering EGWPs are required to comply with the same low-income premium

subsidy amount requirements that apply to PDP sponsors offering plans to individual

Medicare beneficiaries. See 42 CFR 423.800(b). Thus, EGWP Part D sponsors are

responsible for identifying employer/union group health plan LIS Part D eligibles and passing

through the low-income premium subsidy amount payments made by CMS on behalf of these

Part D eligibles to reduce their premium contributions.

Premiums charged (to the beneficiary and/or the employer/union) for a particular “800 series”

PDP plan benefit package can vary between different employer/union group health plan

sponsors and also among a particular employer group health plan’s Part D eligibles based on

legitimate criteria such as years of service. See section 20.4 of this chapter. CMS does not

take into account these variations in premiums because CMS does not receive information on

these variations during the annual Part D bidding process. Even though premium amounts

may vary among and between employer/union group health plan enrollees as described above,

the LIS premium subsidy amounts paid by CMS to all EGWPs for all enrollees of a particular

“800 series” or Direct Contract plan benefit package do not vary.

As a condition of receiving the waivers and modifications described above, CMS requires that

all PDP sponsors offering EGWPs ensure that any low-income premium subsidy amount paid

on behalf of an LIS beneficiary accrues first to the benefit of the LIS-eligible employer/union

group health plan Part D eligible. Specifically, the low-income premium subsidy must first be

used to reduce any portion of the monthly beneficiary premium paid by the Part D eligible (or

in those instances where the subscriber to or participant in the employer/union plan pays

premiums on behalf of a low-income eligible spouse or dependent, the amount the subscriber

or participant pays), with any remaining portion of the premium subsidy amount then applied

toward the portion of any monthly premium paid for by the employer/union. However, if the

sum of the enrollee’s monthly premium (or the subscriber’s/participant’s monthly premium, if

applicable) and the employer/union sponsor’s monthly premiums (i.e., total monthly

premium) is less than the monthly low-income premium subsidy amount, any portion of the

low-income premium subsidy amount above the total monthly premium must be returned

directly to CMS.

Similarly, if there is no monthly premium charged to the beneficiary (or

subscriber/participant, if applicable) or employer/union, the entire low-income premium

subsidy amount must be returned directly to CMS and cannot be retained by the PDP sponsor,

the employer/union, or the employer/union group Part D eligible (or the

subscriber/participant, if applicable). If low-income premium subsidy amounts need to be

returned to CMS for any employer/union group sponsor enrollees that meet the above criteria,

PDP sponsors are required to immediately contact their CMS account manager for

instructions on how to return these amounts.

As stated in section 10.5, PDP sponsors may enter into reinsurance or administrative services

arrangements with self-insured (i.e., self-funded) employers/unions. Therefore, instead of

paying an insurance premium to the PDP sponsor, the employer/union group typically pays an

administrative fee to the PDP sponsor. In these kinds of arrangements, in order to properly

administer the low-income premium subsidy requirements outlined above, the PDP sponsor

must develop an “illustrative premium.” The “illustrative premium” is equal to the premium

the employer/union group plan sponsor would have paid if they had purchased an equivalent

product offered by the PDP sponsor. The same rules outlined above would be applied using

the illustrative premium in the place of actual premium. The PDP sponsor will be required to

develop and apply an “illustrative premium” for each self-insured or self-funded

employer/union group plan sponsor.

Note that if the low-income premium subsidy amount for which an enrollee is eligible is less

than the portion of the monthly beneficiary premium paid by the Part D eligible (or

subscriber/participant, if applicable), then the employer/union should communicate to the Part

D eligible (or subscriber/participant) the financial consequences of the low-income subsidy

eligible individual enrolling in the employer/union sponsored group health plan as compared

to enrolling in another PDP with a monthly beneficiary premium equal to or below the low-income premium subsidy amount.

Ability to Refund Low-Income Premium Subsidy Amounts

In accordance with 42 CFR 423.800, where the PDP sponsor offering the EGWP directly bills

the employer/union sponsor’s Part D eligibles for their premium contributions, the Part D

sponsor is required to reduce up-front the premiums charged to reflect the low-income

premium subsidy payments paid to the PDP sponsor by CMS on behalf of these individuals.

If, however, the PDP sponsor does not or cannot directly bill an employer/union group health

plan’s Part D eligibles, CMS will waive this up-front reduction requirement and permit the

PDP sponsor to directly refund the amount of the low-income premium subsidy to the LIS

beneficiary. This refund must meet the above requirements concerning beneficiary premium

contributions; specifically, that the amount of the refund not exceed the amount of the

monthly premium contribution by the Part D eligible (or subscriber/participant, if applicable)

and/or the employer/union sponsor. In addition, the PDP sponsor must refund these amounts

to the beneficiary within a reasonable time period. However, under no circumstances may

this time period exceed 45 days from the date that the PDP sponsor receives from CMS the

low-income premium subsidy amount payment for the low-income subsidy eligible enrollee.

Alternatively, the PDP sponsor and the employer/union may agree that the employer/union

will be responsible for reducing up-front the premium contribution required for its Part D

eligibles that are eligible for the Low-Income Subsidy. In those instances where the

employer/union is not able to reduce up-front the premiums paid by the enrollee (or

subscriber/participant, if applicable), the PDP sponsor and the employer/union may agree that

the employer/union shall directly refund to the Part D eligible (or subscriber/participant, if

applicable) the amount of the low-income premium subsidy up to the monthly premium

contribution previously collected from the Part D eligible (or subscriber/participant, if

applicable). The employer/union is required to complete the refund on behalf of the PDP

sponsor within 45 days of the date the PDP sponsor receives from CMS the low-income

premium subsidy amount payment for the low-income subsidy eligible enrollee.

Note that in some cases the LIS beneficiary may not be the subscriber to or participant in an

employer/union sponsored group health plan, but the spouse or dependent of the

subscriber/participant. In these instances, where the PDP sponsor or employer/union refunds

low-income premium subsidy amounts to LIS enrollees, it may refund such amounts directly

to the employer/union group health plan subscriber/participant on behalf of a spouse or

dependent who is an LIS-eligible beneficiary.

Requirement to Retain and Provide Documents

As a condition of receiving the waivers and modifications described above and to support the

PDP sponsor’s compliance with the low-income pass-through requirements, CMS requires

that all PDP sponsors offering EGWPs retain documents and/or working papers that support

their adherence to these requirements. These include documents evidencing that low-income

premium subsidy amounts were properly passed through or refunded by either the PDP

sponsor or the employer/union group plan sponsor and documents or working papers

evidencing the calculation of “illustrative premium” for each self-insured/self-funded

employer/union group plan sponsor. Also, PDP sponsors will be required to retain all of these

documents and must provide access to this documentation for inspection or audit by CMS (or

its designee) in accordance with the requirements of 42 CFR 423.504(d) and 423.505(d) and

(e).

Requirement to Obtain and Provide Written Agreements With Employer/Union Group Plan

Sponsors

As a condition of receiving the waivers and modifications described above, CMS also requires

that all PDP sponsors offering EGWPs enter into written agreements with employers/unions

which require the employer/union to comply with the above requirements and to retain and

provide documents upon request to the PDP sponsor evidencing the employer/union group

plan sponsor’s adherence to such requirements. This includes the requirement that any low-income premium subsidy amount paid to the employer/union sponsor on behalf an LIS

beneficiary is first used to reduce any portion of the monthly PDP premium paid for by the

Part D eligible (or subscriber/participant, if applicable). Also, if the employer/union assumes

responsibility for either reducing up-front LIS beneficiaries’ monthly premiums or refunding

to LIS beneficiaries their monthly premium contributions, the PDP sponsor shall ensure that

its written agreement with the employer/union also reflects the employer/union sponsor’s

assumption of these duties consistent with the above requirements (including a provision

requiring that any refunds to an LIS beneficiary be completed within 45 days of the date the

PDP sponsor receives the low-income premium subsidy amount payment for that beneficiary

from CMS). PDP sponsors will be required to retain all of these written agreements with

employers/unions and must provide access to these written agreements for inspection or audit

by CMS (or its designee) in accordance with 42 CFR 423.504(d) and 423.505(d) and (e).

CMS Payment of LIS Premium Amounts to All EGWPs

Beginning in 2007, HPMS included a new table that provides all Part D sponsors with the

monthly payments they are receiving to subsidize their low-income enrollees’ premiums.

These same payment amounts are reflected in the electronically generated reports received by

all PDP sponsors on a regular basis from CMS. HPMS will continue to have a separate table

providing the low-income premiums that beneficiaries pay in the plans. However, HPMS will

no longer display the low-income premiums for EGWP enrollees in this table. These amounts

will be reflected as “N/A” for all EGWPs because, as stated above, the premiums for

beneficiaries enrolled in these plans can vary, and CMS does not collect this information.

Note that beginning in 2007, the following rounding rules were used in determining EGWP

LIS premium payment amounts: the base beneficiary premium ($27.35) was rounded to the

nearest $.10 ($27.40) and was used as the Direct Contract or “800 series” plan premium. See

42 CFR 423.780(b)(1). The rounded base beneficiary premium was compared to the unrounded low-income benchmark premium amount for the PDP region. If the low-income

benchmark premium amount was less than the rounded base beneficiary premium, the low-income benchmark premium amount was rounded to the nearest $.10 to derive the low-income premium subsidy amount.