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Accounting Treatment for Medicare Part D Retiree Drug Subsidy Payments—Recent Developments

Minutes of Meeting, June 16, 2006 Teleconference

After discussion of a ballot draft, the Board cleared staff Technical Bulletin No. 2006-1, Accounting and Financial Reporting by Employers and OPEB Plans for Payments from the Federal Government Pursuant to the Retiree Drug Subsidy Provisions of Medicare Part D, for issuance

Minutes of Meeting, May 31–June 2, 2006

The Board discussed comments received in response to the proposed Technical Bulletin, Accounting and Financial Reporting by Employers and OPEB Plans for Payments from the Federal Government Pursuant to the Provisions of Medicare Part D, issued February 17, 2006. Discussion focused on issues commented on by respondents regarding the substance and measurement of the transaction between the federal government and the state or local governmental employer—specifically, whether that transaction should be viewed as so inextricably linked to the exchange of (prescription) benefits for employee services as to warrant the inclusion of projected inflows of federal payments as part of the measurement of that exchange. After the discussion, a majority of the Board tentatively did not object to going forward with the approach in the proposed Technical Bulletin, which would result in accounting for the two transactions separately. The Board is scheduled to clear a final Technical Bulletin on this issue at its teleconference meeting on June 16.

Minutes of Meeting, February 16, 2006 Teleconference

The Board cleared for exposure the proposed staff Technical Bulletin, Accounting and Financial Reporting by Employers and OPEB Plans for Payments from the Federal Government Pursuant to the Provisions of Medicare Part D.

Minutes of Meeting, January 24-26, 2006

The Board discussed a paper and the initial draft of an Exposure Draft of a staff Technical Bulletin on accounting for payments received by state and local governmental employers or OPEB plans from the federal government under Medicare Part D. After discussion of alternative views, the Board tentatively concurred with staff’s conclusion that in contrast with the benefit coverage by the federal government under Medicare Parts A and B, payments by the federal government under Medicare Part D stipulate continued coverage by the employer of prescription drug benefits to Medicare-eligible retirees as a condition of eligibility. Thus, Medicare Part D payments do not constitute a partial assumption by the federal government of the employer’s obligation to provide postemployment healthcare coverage, which is a function of the OPEB exchange transaction between the employer and employees, but should be accounted for as a separate transaction under the standards for:

• Voluntary nonexchange transactions—if payments are made to an employer

• On-behalf payments for fringe benefits—if payments are made to an OPEB plan.

Under this approach, payments from the federal government would be reported as a revenue versus a reduction of an expenditure/expense.

The Board will discuss a ballot draft of the Exposure Draft during the teleconference meeting on February 16, prior to balloting in regard to staff’s request for clearance to issue a Technical Bulletin.

Accounting Treatment for Medicare Part D—Relevant Links