Employers Considering Exchanges for Retiree Health Care

September 26, 2012 (PLANSPONSOR.com) – Most employers are considering implementing retiree health care strategies that open access to the individual Medicare plan market through health care exchanges, according to a survey by Aon Hewitt.

The survey of nearly 450 private and public plan sponsors representing 5.8 million retirees found six in 10 employers have reviewed or are currently reviewing their retiree health care strategies and are considering alternatives in order to leverage opportunities created by the Patient Protection and Affordable Care Act (PPACA). Of those employers planning changes, 63% are currently implementing or are considering moving towards an individual market strategy, where they would leverage a health exchange partnership.   

Aon Hewitt estimates that approximately two-thirds of Medicare-eligible retirees in the U.S. are already enrolled in a Medicare plan through the individual market.  

The survey found 65% of plan sponsors said they will at least consider leveraging an exchange strategy for their pre-Medicare retirees some time after 2013, with or without a subsidy, in order to take advantage of the opportunities created through new state-sponsored health care exchanges and additional PPACA market reforms.  

“With the Supreme Court ruling largely upholding the PPACA, plan sponsors have the opportunity to reassess their role as a provider of retiree health care benefits and consider changes that will better position their retiree health care programs for the future,” said John Grosso, health care actuary and leader of the Aon Hewitt Retiree Health Care sub-practice. “The combination of changes to the Medicare Part D and Medicare Advantage programs, along with the choice, competition and generally favorable rating rules, have made the individual market very cost-effective compared to the group insurance program. We expect that there will be a similar opportunity for pre-Medicare retirees beginning in 2014.”

In addition to an individual market strategy, Aon Hewitt's survey shows employers are currently pursuing two other general retiree health care strategies in response to provisions of the PPACA.  

Prompted by the elimination of the tax-favored status of the Retiree Drug Subsidy (RDS) under the PPACA, a majority of employers (61%) expect to change either their Medicare Part D or broader strategy for Medicare-eligible retirees. Of those plan sponsors, 17% made changes in 2011 or 2012, another 11% will make changes for 2013, and nearly three-quarters (72%) are currently exploring what actions to take and when. Of the employers who have already decided to make changes to their retiree drug program, 62% are moving forward with a group-based Medicare Part D Prescription Drug Plan (PDP/EGWP). Thirty-two percent are leveraging the individual Medicare-eligible health insurance market in some manner.  

To mitigate the cost of the excise tax on high-cost health plans in 2018, more than one-quarter (29%) of plan sponsors anticipate changing plan features such as deductibles, co-payments and coinsurance, Aon Hewitt's research shows. Twenty-two percent would favor sourcing coverage through the state exchanges, and 18% prefer changing retiree premium cost-sharing in some manner. While most employers anticipate needing to manage excise tax exposure over time, 69% do not anticipate announcing or implementing actions in the near term. Only 12% did so before 2012.  

“Even though the excise tax is not scheduled to take effect until 2018, plan sponsors must reflect any anticipated excise tax exposure on their current financial statements,“ said Milind Desai, retirement actuary at Aon Hewitt. “Some employers have already made changes to their retiree strategy to limit this impact, but others with higher cost plans should, at a minimum, evaluate how they can preserve the tax efficiency of their program on behalf of both the plan sponsor and participating retirees.”