RDS vs EGWP Coverage

What is an EGWP Coverage?

The Employer Group Waiver Plan is an economical way for organizations to offer prescription drug coverage to retirees. Medicare Part D is a federal program that allows private companies to offer retail prescription drug coverage to Medicare recipients. The vendor of the EGWP offers a subsidy to the employer not based on their financial status, but rather the level of risk they pose to the vendor.

Medicare Part D Donut Hole

Medicare Part D has a coverage gap called a “donut hole”. After your Medicare Part D coverage has paid out a certain amount of money towards your prescription, the rest of the cost must be covered out of pocket by the recipient. The limit is delineated by a yearly limit. There are subsidies available that can discount the out of pocket costs for prescription medications by 50%. That particular subsidy is called “The Coverage Gap Discount Program”. The CMS (Centers for Medicare & Medicaid Services) offers something called the CMS Direct Subsidy which can award at most $500 annually based on the aforementioned risk scores that are determined by Medicare. This subsidy rivals or exceeds the amount received from the RDS subsidy in many cases.

What is an RDS?

The RDS (Retiree Drug Subsidy) is a federal subsidy for continuing your prescription drug program. Under the RDS, you will be reimbursed 28% of your prescription costs that lie in between your cost threshold and cost limit. While those figures change year to year, the RDS provides a subsidy to essentially help cover out of pocket costs. The RDS was the defacto choice for organizations seeking a Medicare subsidy for a very long time. However, changes made to the RDS in accordance with the ACA (Affordable Care Act) made it a considerably less enticing prospect. The ACA essentially revoked the tax exemption benefits the RDS possessed which made it fall out of favor with organizations.

How Do They Compare?

Many organizations are switching to EGWP support due to the constraints that RDS plans require plan sponsors. For instance, the plan sponsor must pass two actuarial tests annually to continue sponsorship. The test is exactly as it sounds, a qualified Actuary must complete a two-part Actuarial Test as a prerequisite for submitting an application. The test is comprised of a Gross Value Test and a Net Value Test. These tests determine whether the applicant is receiving benefits under the plan sponsor’s plan that are equivalent to or greater than that which they would receive under a standard Medicare Part D plan.

Additionally, RDS plan sponsors must reach out to the CMS to receive their yearly reimbursement which is calculated through assessing their gross spending on drugs. In other words, there is a great deal of administrative work that goes into offering RDS programs that EGWP’s don’t have.

Which Plan is Best for Retirees?

While it is difficult to say which is best across the board because it is highly dependent on circumstances. As a general rule of thumb, EGWP coverage provides a higher base subsidy than RDS plans and even come with catastrophic reinsurance which kicks in when out of pocket costs exceed $5100 or a total of $8140 in total drug costs. Having an EGWP with a wraparound provision can help save a lot of money when a participant is in the gap in which Part D does not offer coverage. Drug manufacturers will offer a 50% discount on brand name drugs.

Benistar Medicare Part D Benefits

EGWP will confer more savings to retirees on average than RDS. Benistar is a Medicare Part D plan sponsor and our prescription drug benefits allow for flexibility in plan design, flat co-pays or coinsurance and have nationwide plan availability. Contact us here to learn about our low premiums and benefits today.