The Coal Act established beneficiary eligibility requirements, a standard for covered benefits, and separate boards of trustees to oversee the CBF and the 1992 Benefit Plan. For both funds, the act requires coal companies to pay premiums for beneficiaries and their dependents, but the annual premium amount, the method for adjusting the premium each year, and other financing arrangements are quite different for each fund. Since the Funds were established in 1993, coal companies have challenged several provisions of the law. Court decisions in favor of former employers have reduced the premium contributions paid by the companies to the CBF. Although the CBF’s financing was originally expected to be adequate, the CBF has incurred an annual operating deficit in each year since 1997, prompting Congress to make special appropriations in 1999 and 2000 to maintain its solvency. In contrast, the 1992 Benefit Plan has had an annual operating deficit in only one year (2000) since its inception. The Coal Act limited coverage under the Funds to retired coal miners, their spouses and dependents who were eligible for benefits under former UMWA retiree benefit plans. There were approximately 115,000 beneficiaries in 1993. The number of beneficiaries has declined each year as individuals died and dependent minors reached 22 years of age and no longer qualified for coverage (the current population is declining by approximately 9 percent per year). In 2001, the Funds provided health benefits to about 61,000 beneficiaries. Approximately 70 percent of beneficiaries are female and the median age is over 78. Most of the Funds’ beneficiaries are eligible for Medicare (89 percent) and others are from 55 to 64 years of age and nearing eligibility (7 percent). Most of the Funds’ beneficiaries (62 percent) live in rural or nonmetropolitan urban areas. More than three quarters of the beneficiaries live in five states: West Virginia (32 percent), Pennsylvania (19 percent), Kentucky (12 percent), Virginia (8 percent), and Ohio (6 percent). In 2000, the median income of the Funds’ beneficiaries ($17,100) was similar to the median income of all Medicare beneficiaries ($18,000). The Coal Act specified that “to the maximum extent feasible,” the Funds’ coverage be “substantially the same as” the coverage provided under the UMWA retiree health plans they replaced, provided that premium income is sufficient to cover payment rates to providers. Thus, the Funds’ benefit packages reflect the outcome of prior agreements between UMWA and coal companies. The benefits include coverage for inpatient and outpatient hospital care, physician services, prescription drugs, home health services, SNF care, mental health care, and durable medical equipment such as ventilators and wheelchairs. All of the Funds’ beneficiaries receive the same package of benefits regardless of their entitlement status (retiree, spouse, or dependent) or their eligibility for Medicare. For Medicare-eligible beneficiaries, the Funds pay Medicare’s required cost sharing (coinsurance, copayments, and deductibles) in addition to the cost of services included in the Funds’ benefit packages but not covered by Medicare, such as outpatient prescription drugs. Except for required copayments, the Funds pay the entire cost of covered services provided to beneficiaries who are not eligible for Medicare. There are separate boards of trustees for the CBF and for the 1992 Benefit Plan. The Coal Act stipulates that the CBF board consist of one individual designated by the Bituminous Coal Operators Association (BCOA) to represent employers in the coal mining industry, one individual jointly designated by the three employers with the greatest number of assigned beneficiaries, two individuals designated by UMWA, and three persons selected by the other board members. UMWA and BCOA each appoint two members to the board of the 1992 Benefit Plan. Some individuals serve as trustees for both the CBF and the 1992 Benefit Plan. The Coal Act established the Funds’ initial and ongoing financing structures. Both funds receive annual revenues from coal company premiums and Medicare payments. However, the CBF also received an initial transfer of assets from the 1950 UMWA Pension Plan, and has received some of the accumulated interest from the Abandoned Mine Reclamation fund (AML) since 1996. Together, these revenues pay for health care expenses and the associated administrative costs of the health plans, which include the cost of third-party contracts for claims processing and utilization review, general overhead, and legal representation in lawsuits brought by and against the Funds. The Coal Act requires certain coal and other companies to pay premiums on behalf of beneficiaries who are covered by the 1992 Benefit Plan or the CBF. However, the 1992 Benefit Plan and the CBF differ in how the annual premium amount is determined and the extent to which coal companies are responsible for beneficiaries. For the 1992 Benefit Plan, the Coal Act allows the premiums to be adjusted annually to cover changes in the cost of providing benefits. The trustees have historically set the premiums so that revenues will meet projected annual expenditures. Thus, premium adjustments reflect changes in medical prices or beneficiaries’ use of medical services. For 2002, the annual premium was about $4,437, or about 38 percent higher than the CBF annual premium. The Coal Act assigns financial responsibility for paying premiums to each eligible retiree’s most recent coal industry employer. If an employer has gone out of business, or the premium cannot otherwise be collected, the cost of affected 1992 Benefit Plan beneficiaries is shared by other coal companies that were signatories to a prior agreement between the industry and UMWA and that have either current or potentially eligible beneficiaries under the 1992 Benefit Plan. For the CBF, the Coal Act specifies a method for determining the premium to be paid by a company for each of its retirees and eligible dependents, and how the premium is updated. The premium is based on the cost of providing benefits under the UMWA’s retiree health plan during the period between July 1, 1991 through June 30, 1992. It is increased each year by the percentage change in general medical prices as measured by the medical component of the consumer price index. In 2002, the annual premium was about $2,725. The Social Security Administration (SSA) was charged with determining which company is financially responsible for each CBF beneficiary. In some cases, SSA was not able to assign a beneficiary to a responsible company. This occurred, for example, when a beneficiary’s former employer had gone out of business. In 2001, about 71 percent of CBF beneficiaries were assigned to companies that were responsible for paying premiums on their behalf. The CBF did not receive premium payments from coal companies or their successors for the 29 percent of beneficiaries who were unassigned. The Coal Act allows for transfers of accumulated interest from the AML, a federal fund financed by levies on coal extraction, to cover the projected costs of the CBF’s unassigned beneficiaries. Since 1996, transfers of interest from the AML to the CBF have helped to pay for costs associated with assigned beneficiaries. In 1999 and 2000, Congress made special appropriations to keep the CBF solvent. The AML moneys have not been used to support the 1992 Benefit Plan. The Funds are participants in a Medicare demonstration project that places them at financial risk for the cost of Medicare-covered services delivered to eligible beneficiaries. The extent of the Funds’ financial risk varies by type of service. The Funds assume partial risk for the cost of Medicare’s part A benefits that include coverage for inpatient hospital services and skilled nursing facility care. Annual spending for these services is compared to an expenditure target. If spending was less than the targeted amount, the difference is shared between the Funds and Medicare according to a predetermined formula. The same formula specifies how the cost of any spending in excess of the targeted amount is to be shared. The Funds assume full financial risk for the cost of Medicare- covered part B benefit that cover physician, hospital outpatient, and certain other services. Medicare pays the Funds a fixed monthly payment per beneficiary, known as a capitation payment, that is projected to cover the cost of these services. If the Funds’ spending on these services for eligible beneficiaries is less than Medicare’s capitation payments, the Funds may retain the difference. However, the Funds are financially responsible for any spending in excess of Medicare’s capitation payments. In recent years, the Funds spent less on Medicare-covered services than the combined total of the annual expenditure target and capitation payments from Medicare. In 1999, for example, this difference amounted to approximately $16 million, of which $4.4 million was retained by the Funds and $11.6 million was retained by Medicare. The Funds can use these retained moneys to help pay for services and items not covered by Medicare, such as outpatient prescription drugs. On July 1, 2001, the Centers for Medicare and Medicaid Services (CMS) renewed the demonstration project for an additional 3 years. At the same time, CMS agreed to include a new component in the demonstration project that will provide the Funds with additional revenue to help cover the cost of outpatient prescription drugs. Under the terms of the new demonstration component, Medicare will pay the Funds an amount equal to 27 percent of their expenditures on outpatient prescription drugs for Medicare-eligible beneficiaries. CMS estimates that the new demonstration component will result in an additional $135 million in Medicare payments to the Funds during the 3-year period. Court decisions in several lawsuits brought by coal companies have reduced the premium revenues available to the CBF and contributed to the financing challenge it faces. The cost of legal representation has also increased the CBF’s annual administrative costs. Since 1992, companies have filed over 50 lawsuits challenging specific aspects of the Coal Act’s implementation. One lawsuit challenged SSA’s calculation of the initial premium rate. As a result of the court decision in that case, premiums charged to companies were reduced by approximately 10 percent. In other lawsuits, companies have challenged some of SSA’s beneficiary assignment decisions. The effect of one Supreme Court decision was to reduce companies’ financial responsibilities thereby increasing the number of unassigned beneficiaries.