Employers Move Toward Exit from Sponsoring Retiree Medical Plans

December 18, 2008 (PLANSPONSOR.com) - A joint nationwide survey conducted by Towers Perrin and the International Society of Certified Employee Benefit Specialists (ISCEBS) indicates a rapid movement toward an ultimate exit for employer plan sponsorship of retiree medical plans.

The survey found employers are examining changes and current and emerging market offerings that can support effective alternatives to traditional employer sponsorship and subsidization of retiree medical, according to a press release.

Towers Perrin and ISCEBS said only 39% of employers offer retiree medical to new hires, but over 70% of respondents still offer retiree medical to current retirees and some portion of their current active population. Nearly 70% of respondents cited costs and cost increases as a significant force influencing change in their programs, the release said. For post-65 retirees, many employers (60%) who have capped their subsidy report plan costs in excess of the cap.

Nearly 90% of respondents cite the current economic environment as an influential driver of change.

Shifting costs to retirees is one way employers are dealing with financial pressures. Among survey respondents, there is a broad range of subsidy levels for pre-65 coverage, with about two-thirds subsidizing between 40% and 80% of plan cost. However, 48% of respondents indicated they have a cost cap, up from 43% last year.

While only 7% of employers have ceased financial support for pre-65 coverage in the past two years, 42% have either changed or plan to change cost-sharing between company and retiree. More than one-third of employers (34%) have introduced, or plan to introduce, a Health Savings Account (coupled with a High Deductible Health Plan) as a means to promote tax-free retiree medical savings.

Almost 40% of respondents indicated they have or will recast cost-sharing terms with post-65 retirees, and almost 20% have ceased or plan to cease providing any post-65 financial support at all.

Aside from decreasing financial support, employers are considering coverage alternatives in the individual coverage insurance market for post-65 retirees triggered by the 2003 Medicare Modernization Act, the press release said. Survey respondents indicate increasing interest in adopting or evaluating alternatives to traditional employer-sponsored post-65 coverage such as Medicare Advantage plans, Part D drug plans, Medigap options, and new approaches promoting the purchase of individual post-65 coverage.

To view the survey results, Employers are Poised to Take Action on Retiree Medical Plans, visit www.iscebs.org .