Tackling the Thorny Challenge of Retiree Medical Coverage

Tackling the Thorny Challenge of Retiree Medical Coverage

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Tackling the Thorny Challenge of Retiree Medical Coverage
Calendar29 August 2014

Employers are reevaluating their retiree medical offerings in light of health reform, which has both improved existing Medicare coverage for retirees and introduced the option of buying coverage on the public exchange for retirees not yet eligible for Medicare.

Mercer’s National Survey of Employer-Sponsored Health Plans 2013 found that just 22% of large employers (those with 500 or more employees) sponsor or administer an ongoing medical plan for pre-Medicare-eligible retirees, down from 24% in 2012, and just 17% for Medicare-eligible retirees. (This doesn’t include employers that offer coverage to a closed group of current or future retirees but not to new hires.) The larger the organization, the more likely it is to offer retiree medical benefits. Still, even some very large employers are closing their plans to new hires. Among those with 20,000 or more employees, 43% offer an ongoing plan for pre-Medicare-eligible retirees, down from 48% in 2012, and 32% offer an ongoing plan for Medicare-eligible retirees, down from 37%.

Some employers now provide retirees with a private exchange or a subsidy to purchase coverage on their own: 5% for pre-Medicare-eligible retirees and 6% for Medicare-eligible retirees. Among very large employers, private exchanges or subsidies are provided to pre-Medicare-eligible retirees by 8% and to Medicare-eligible retirees by 15%.

These survey results suggest that public and private exchanges will play an increasingly important role in retiree coverage. In 2013, fewer than half of current retiree health plan sponsors (49%) believed they would continue to offer the retiree plan for at least the next five years. Of those that expect to terminate their retiree plan (or aren’t sure), about one-third say they would provide pre-Medicare-eligible retirees with a subsidy to purchase coverage in a public exchange. These sponsors likely currently contribute to the cost of coverage. In organizations where the employer sponsors a plan but requires retirees to pay the full cost of coverage, members might save money by purchasing coverage in a public exchange even without an employer subsidy.

Interest in private exchanges for pre-Medicare-eligible retirees is also growing: fully one-third of retiree plan sponsors say they are considering moving to a private exchange for their early retirees in the next five years. Private exchanges allow an employer to better manage their spending and simplify administration while delivering flexibility and choice to retirees. Members have easy access to attractive insurance products that meet other important needs (life, accident, disability, critical illness, auto, etc.) and more control over how they spend their benefit dollars.

For Medicare-eligible retirees, private exchanges are already an attractive option and poised for growth. About a quarter of retiree plan sponsors (24%) are considering moving to a private exchange for Medicare-eligible retirees within five years. Interest is greatest among the largest employers: Among those with 20,000 or more employees, 44% of those currently offering coverage are considering an exchange within five years.

In making decisions about whether to continue, cut back, or terminate their plans, retiree plan sponsors should consider that retirement patterns are affected by the availability of coverage. Among employers offering retiree benefits, the median retirement age in 2012 was 62; among employers without retiree coverage, the median retirement age was 65. This gap suggests that older employees see the lack of coverage as a barrier to retirement. However, this could change now that pre-Medicare-eligible retirees are able to purchase coverage on the public exchanges.

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