Millions of seniors already get help with their prescription drug costs, courtesy of employers who cover their retirees. So Congress (search) is faced with a question: How much to spend on drug benefits for these retirees?

Some want to preserve scarce taxpayer dollars for those with no coverage at all. Others fear that without aid, employers will drop drug coverage for their workers altogether, ultimately costing the taxpayers even more money.

Seniors who now have excellent private benefits could end up with a government package that is far less attractive.

Legislation pending in both the Senate and House would subsidize employers who continue to cover their retirees, but would not assume the entire cost. The Congressional Budget Office (search) estimates that, under the Senate bill, 37 percent of retirees who now have private employer coverage would be dropped.

The Senate (search) Tuesday rejected an effort aimed at preserving employee coverage by counting contributions from employers toward the money seniors must spend before the government prescription drug benefit for people with very high drug costs would kick in. The vote was 52-43.

"This amendment is needed to protect the existing coverage of literally millions and millions of retirees who have earned drug coverage through their employer," said the amendment's sponsor, Sen. Jay Rockefeller, D-W.Va.

But Sen. Rick Santorum, R-Pa., called it "nothing but a corporate giveaway."

Democratic Sens. Edward Kennedy of Massachusetts and Max Baucus of Montana had an alternate proposal -- a $20 billion plan to give companies tax credits for maintaining coverage. Its prospects for making it into the final bill were unclear.

About one in three Medicare beneficiaries gets drug coverage from an employer. Some of these benefits have been negotiated through union contracts, while others are offered voluntarily.

Kate Sullivan, a health care lobbyist for the U.S. Chamber of Commerce, predicted that employers are unlikely to drop current retirees from drug coverage but may cut off future retirees.

"It should not come as a big surprise that when Medicare says we're going to pay for this, that employers say `fine go ahead,"' Sullivan said. "Employers will say, yes, by all means, please pay for it, and you're going to pay for our retirees too."

The 37 percent estimate might be low, said Paul Fronstin, a health analyst at the Employee Benefits Research Institute. The trend is already toward employers dropping coverage, he said.

"They just want to reduce their expenses and this is one way to do it," he said.

Fronstin said it won't matter to many companies if their retirees wind up in a government program that is less generous than what they got from the employer. "They're looking for relief. A Medicare drug bill can give them some relief."

In 2003, employers spent an estimated $22.5 billion on retiree drug benefits.

Some of that money also could wind up benefiting retirees in other ways, by sweetening pensions or other parts of their health coverage.

It's a problem that Congress periodically confronts when expanding government aid, particularly health benefits, where coverage is spotty and the government is trying to fill the holes.

The Medicare prescription drug bill now moving through Congress would require seniors to spend $3,700 of their own money before they qualify for government aid for very high drug costs.

Under the pending legislation, contributions from employers would not count toward that amount. Rockefeller's amendment would have changed that -- essentially replacing private dollars with tax dollars once expenses go high enough.

Santorum argued that Congress should use the $400 billion that is available over the next decade to help "the poorest of the poor." Rockefeller's amendment, he contended, would amount to "an unwise transfer of government dollars ... to big corporations who already have very generous health care."