Employers Want to Help with Retirement Health Costs

While employers want to maintain the promise of retiree health benefits to employees, a number of forces are influencing them to change their approach.

Employers are taking a number of steps relating to health care costs to improve the retirement readiness of their current employees, a survey from Towers Watson finds.

Employers are offering account-based health plans (ABHPs) (65%); educating employees and retirees about the cost they will incur beyond the employer subsidy (53%); promoting health, wellness and disease management programs to help retirees improve health and reduce out-of-pocket costs (49%); and offering financial planning resources and decision support tools to help employees understand and plan for the cost of medical coverage during retirement (41%).

In addition, nearly eight in 10 companies (78%) responding to Towers Watson’s 2015 Survey on Retiree Health Care Strategies currently provide retiree health benefits to both pre-Medicare and Medicare-eligible retirees. Seventy percent make the promise of health benefits in retirement to current active employees, and 57% plan to offer these benefits to employees hired after 2014.

Nearly nine out of 10 employers (89%) say retirement medical benefit security is somewhat to extremely important to their retirees. While they want to maintain the promise to employees, a number of forces are influencing employers to change their approach, including the accounting liability on their balance sheets (92%), the ongoing administration and expense (90%), Employee Retirement Income Security Act (ERISA) fiduciary and disclosure obligations (84%) and the absence of an efficient funding vehicle (54%).

Most sponsors (93%) of medical plans for Medicare-eligible retirees expect to continue sponsorship or provide a subsidy for at least the next three years, and they continue that promise to active employees (90%) and even new hires (86%). However, 60% say their 2015 plan costs already exceed the cap they have on their costs.

Concerned about costs, 34% are altering plan design, with 30% changing employer subsidies and formulas for cost sharing with employees. They are also actively considering alternatives: 78% are using or considering using the services of a Medicare exchange to assist retirees in electing individual coverage, and 41% are funding or considering funding retiree medical benefits through a voluntary employee beneficiary association (VEBA) or a 401(h) to reduce their risk profile.

Top factors influencing employers’ medical strategy and design in the next two to three years include coverage cost and medical inflation, the 2018 Patient Protection and Affordable Care Act (ACA) excise tax, availability of exchanges and administrative burden.

Towers Watson surveyed 144 companies representing 2.1 million employees and nearly a million retirees in September 2014 for its Survey on Retiree Health Care Strategies. The survey report may be downloaded from here.