CA Exploring Low-Cost Drug Alternatives

August 20, 2004 (PLANSPONSOR.com) - Governor Arnold Schwarzenegger is calling for a new program in California to offer drug discounts to the uninsured as an alternative to importing drugs from Canada.

Kimberly Belshe, the state’s health and human services secretary, has rejected legislative plans to set up a Web site for California residents to facilitate the purchase of Canadian drugs. Rather, Belshe sent a letter to legislative leaders that outlines the administration’s plans to take advantage of free drug programs sponsored by pharmaceutical companies and renew efforts by the state to use its leverage to negotiate discounts, according to a San Diego Union Tribune report.

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In the letter, Belshe said the free drug programs have not been sufficiently publicized or made accessible to people who qualify. Under the plan, participants would get a card they could present to a pharmacist, who would then find the lowest price for the drugs, whether through state-leveraged discounts or a manufacturer’s patient-assistance program.

Additionally, the state would contract with an outside vendor to negotiate price discounts from drug manufacturers and operate an enrollment system.

While the governor’s program would be targeted toward uninsured, lower-income residents, it would be available to families with incomes of up to 300% of the federal poverty level, or about $55,000 for a family of four.

Canadian Drug Efforts

The Democratic-controlled Legislature has given preliminary approval to two proposals for obtaining Canadian drugs. One would create a state Web site to make it easier for Californians to buy the cheaper drugs, while the other would put state agencies on the road toward buying them. The bills had been expected win final approval and sent to the Republican governor’s desk next week.

Pointing to efforts amongst legislatures to examine importation models, Belshe said such a proposal would expose the state to civil and criminal liability because it would violate a federal prohibition against importing drugs from Canada. Further, she added the l egislation “would at best be a symbolic gesture that would never be implemented and never bring relief to Californians who desperately need assistance.”

Even though federal law makes it illegal to import drugs from Canada, a variety of states are challenging the law. Earlier this week, Illinois Governor Rod Blagojevich announced plans on to set up a state Web site to facilitate individual purchases from Canada, Britain and Ireland (See Illinois Becomes Fifth State to Import Prescription Drugs from Abroad ). With the announcement, Illinoisbecame the fifth state to allow residents access to imported drugs – the others areMinnesota,Wisconsin,New Hampshire, andNorth Dakotabut it will be the first state to include countries inEurope.

IRS Provides Alternative DRC Funding Guidance

August 19, 2004 (PLANSPONSOR.com) - The Treasury Department and Internal Revenue Service (IRS) have provided guidance on the restrictions that are placed on plan amendments following an employer's election of the alternative deficit reduction contribution (DRC).

The Pension Funding Equity Act generally prohibits benefit improvements under a plan that makes the alternative deficit reduction contribution election, but provides for certain exceptions.Notice 2004-59provides rules for the application of this exception.

Oneexception laid out in the IRS’ document is where the plan’s enrolled actuary certifies that theamendment provides for an increase in annual contributions that willexceed the increase in annual minimum funding requirements for theplan attributable to the plan amendment.

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>This Notice is in addition to the previously issued Announcements 2004-38, 2004-43 and 2004-51 that set forth the procedures and timing with respect to this election (See IRS Provides Guidance on Alternative DRC Notice Requirements ).

DRC Provisions

As the rules stood prior to the passage of the Pension Funding Equity Act, companies that offer defined benefit pension plans were required to make additional contributions when they are less than 90% funded.  DRC rules require companies to close an underfunded gap on an accelerated basis, but that acceleration in funding flows can also impose a significant cash flow burden on a financially troubled employer since, during this period, they are also required to make their normally required pension contributions in addition to those imposed under the DRC requirements. 

The Act, which was passed on April 10, permitted alternative arrangements to satisfy DRC requirements  (See  Whew! Bush Signs Pension Relief ).  Outlined in the Act, Section 412(I)(12) of the Internal Revenue Code (IRC) was amended allowing certain employers who are required to make additional defined benefit contributions under Section 412(l) to elect a reduced amount of those contributions for certain plan years.  More specifically, the alternative arrangement applies to airlines and steel and iron manufactures.  Additionally, multiemployer plans that can certify a likely funding deficiency would be eligible to defer accounting for some investment losses and thereby avoid payment of excise taxes for underfunding

Companies that receive DRC relief will be required to contribute at least the amount necessary to fund the expected increase in current liability that results from benefits that have accrued during the year.  An election to make the alternative DRC for any plan year must be made by the end of the first quarter of that plan year.

A copy of Notice 2004-59 is available   here.

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