Results of 2008 Retiree Healthcare Negotiations for Plan Year 2009 - REVISED

To:  Alcatel-Lucent Local Presidents

I neglected to include the increase to the Prescription Drug Plan Out of Pocket Maximum in 2009 in my original web posting and have added it to the Prescription Drug Plan Co-pay information.  The Out of Pocket Maximum will increase from $1250 to $1500 in 2009.  This increase to the co-pay in addition to the increased Out of Pocket Maximum could result in a savings of $5.8 in 2009.  I apologize for the omission.

The Joint Retiree Healthcare Committee (JRHC) has completed annual negotiations in regard to the Formerly Represented Retiree Healthcare Plan for 2009.  Each year, as negotiated in 2004, the JRHC reviews Retiree healthcare costs reported by the Company to have exceeded the negotiated Retiree Healthcare Caps that year.  The Company is required to deposit a minimum of $25 million in a Taft-Harley Trust Fund overseen by Trustees from the Company, the IBEW and CWA, to help reduce the costs to be borne by the Retirees.  The Committee is required to "True Up" the balance of the excess cost by making changes to the Medical and/or Prescription Plan Designs, as well as Provider-recommended programs designed to help save future costs for the Plans and for the Retirees.  The JRHC must also consider possible increases to Retiree contributions. 

This year, the Committee spent a great deal of time researching Provider-recommended programs to minimize increases in the cost of the Plans and/or Retiree contributions in 2009.  To that end, the JRHC has recommended several Prescription Drug Plan Programs that will be administered by Medco.  They include the following:

·  My Rx Choices – This program, currently in place, will be extended into 2009 and will continue to provide participants with ongoing cost saving opportunities.  Although not mandatory, this program provides lower cost alternatives to medications many of our retirees and their dependents currently take.  In 2007 this program resulted in a savings of almost $1 million to the Prescription Drug Plan and more than $600,000 of savings to Retirees and their Dependents.  My Rx Choices could potentially save an additional $1 million.  Retirees, for whom this Program applies, will receive additional information by mail in the near future.

·  Retail Refill Allowance Program (RRA) – The RRA program helps to take advantage of the cost savings at mail order.  Retirees and their dependents will not be mandated to fill their maintenance prescriptions at mail order.  However, following the Participant's third fill of a prescription for the same drug at a retail pharmacy, they will be required to pay a higher prescription drug co-pay if they wish to continue filling the prescriptions at a retail pharmacy.  This is not a mandatory mail order program.  The savings of this program is projected to be $2.1 million in 2009 if used effectively by Retirees and their dependents.

·  Coverage Authorization Programs – These programs, currently in place for 12 drug classes, will be expanded in 2009.  The programs verify that Members' diagnoses and/or quantities dispensed are consistent with coverage requirements.  By adding 11 drug classes to the programs in 2009, a savings potential of $2.6 million is possible.

·  Preferred Step Therapy - This program, for four drug classes, encourages the use of one drug prior to a secondary drug.  This program simply ensures that participants try lower cost generics or lower cost brands before the higher cost brands that may have been prescribed.  If the participant's physician indicates that the higher cost drug is medically necessary, the participant will be allowed to continue taking the drug.  The savings potential with this program is $3.4 million. 

·  Generics Advantage Incentive – Medco has developed a brand-to-generic co-pay waiver that targets patients who have opportunities to use generics, to convert brands to generics and/or move generics to mail.  Participants will receive generics for free during the three month waiver period, the first time they purchase a new generic prescription through Medco by mail.  The estimated savings to the Plan is almost $400,000.

·  Prescription Drug Co-pays and Out of Pocket Maximum - There will be a slight increase in prescription drug co-pays effective 1/1/09.  The 4th Tier will increase from $50 to $55.  The co-pays for Tier 1, 2 and 3 will not increase.  Therefore, the 2009 co-pays will be $10 for Tier 1 generics, $25 for Tier 2 brand, $35 for Tier 3 brand, and $55 for Tier 4 brand.  Drugs in Tier 4 have a generic equivalent.

In addition, the Out of Pocket Maximum with be increased from $1250 to $1500 in 2009.  The increase in the Tier 4 co-pay, in addition to the increased Out of Pocket Maximum, could save nearly $6 million in 2009.

·  Prescription Drug Plan - Out of Pocket Maximum – The Out of Pocket Maximum with increase from $1250 to $1500 in 2009.  This increase will save approximately $5.8 million in 2009.

The 2009 Medical Plan will include the following changes:

·  Emergency Room Co-pay – The co-pay will increase from $60 to $75 in 2009.  The co-pay will continue to apply only if the participant is admitted to the hospital.  The estimated savings for this increase is $50,000.

·  HMO Adjustment Fee - Participants who elect an HMO as their Medical Plan provider in 2009 will be required to pay an HMO surcharge.  This surcharge will apply to all Participants electing an HMO.  The surcharge amounts will be:

  Single – Pre-65: $50
  Family – Pre-65: $100
  Single – Post-65: $25
  Family – Post-65: $50

The savings to the Plan is estimated to be $2.4 million in 2009.

·  Retiree contributions (premiums) – As negotiated in 2004, Retiree contributions increase by a minimum of 0.5% each year.  Contributions are calculated on the amount of a Retiree's monthly pension and do not apply to those who retired before March 1, 1990.  If no change to Retiree contributions had been negotiated for 2009 by the JRHC, the contributions would have increased pre-65 Retiree contributions to 9% - Single and 18% - Family.  Contributions for post-65 Retirees would have increased to 6.5% - Single and 13% - Family.  However, as we did in 2008, the Unions were successful in holding contributions steady for pre-65 Retirees at 8.5% - Single and 17% - Family.  Contributions for post-65 Retirees will be reduced to 5.5% - Single and 11% - Family in 2009.  Non-Medicare eligible retirees' premiums will be 8.5% - Single and 17% - Family in 2009.  Medicare-eligible Retiree contributions will be reduced to 5.5% - Single and 11% - Family in 2009.  The lower contributions will result in a cost of $4.9 million to the Plan.

·  Dependent Verification Audit – The projected savings is conservatively estimated at $1.6 million in 2009.  Budco projected that 1000 ineligible dependents would be dropped as a result of this audit.  This is not a one-time savings, but a savings to the Plan year after year. 

It is important to understand that the Unions successfully lowered Retiree contributions only because the projected cost-savings of the Medco programs listed above are substantial.  However, those projections are based on significant participation by Retirees and/or their dependents.  Should participation fall below the projected numbers, the Unions will have to take up the slack in 2010 and beyond.  On the other hand, if Retirees and/or their dependents fully participate in these programs, savings to the Plan should be significant and will not be limited to 2010, but will also apply in future years. 

I'd like to thank you in advance for all of your support over the past few years.  These negotiations are very difficult and the Unions work very hard to find ways to save the Plan money with minimal impact to the Retirees.  Should you have any questions, please don't hesitate to e-mail me at mflagge@cwa-union.org.

In Unity,

Martha Flagge
CWA Representative

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