Employers altering retiree coverage

As healthcare costs for employers continue to rise, they are taking steps to control costs and manage risks, finds two recent research reports.

“Employers in general are looking at the role that they play in healthcare in the U.S.,” said Jim Winkler, chief innovation officer at human resources provider Aon Hewitt.

One approach is to move coverage of their retirees older than 65 from their group plan to the individual Medicare market or a Medicare Advantage plan, a survey from Aon Hewitt showed.

About 62 percent of the 548 companies in Aon’s survey reported that they were reassessing or had already altered their long-term retiree health strategies because of changes accompanying the Affordable Care Act, said Aon in its report and accompanying news release.

Of the employers considering changes to their pre-65 retiree coverage, 34 percent lean towards a defined contribution with the individual market on the public exchange as the source of benefits, while 30 percent want to eliminate both pre-65 retiree coverage and subsidies. 

[See also: Employers brace for cost increases]

The ACA will require that essential health benefits have no lifetime limits and that dependent coverage is extended to age 26. Many employers are splitting their active and retiree plan structures to avoid new requirements, the report said.

Health reform also eliminates the favorable tax treatment for retiree drug subsidies (RDS) that employers have received to handle Medicare Part D prescription drug benefits within their group. So employers are looking to contract out or direct retirees to local Part D contractors.  

“We knew this was a path employers were going to get to eventually, the caps on your plans and your willingness to spend is going to overrule the tax treatment benefit on the RDS payment,” Winkler said. “There is a better equation for the organization and for retirees now than without the ACA, but it was probably an equation an employer would have hit in a few years anyways.”

There is a robust marketplace now with Medicare plans available that are priced effectively and well regulated, whether it is through individual Medigap health plans, organizations like AARP, or Medicare Advantage, or private exchanges, he said. And public exchanges will have options for pre-65 retirees.

[See also: Employers plan pay tactics to cut costs]

In another report, Towers Watson found similar trends accelerating in its survey of 420 large and mid-size companies to discontinue group plans for their post-65 retirees. In a news release, the professional services firm said that employers discontinuing such plans will increase from 25 percent in 2014 to 44 percent in 2015. Likewise, the percentage of firms that may cease their plan for pre-65 retirees will soar from 10 percent in 2014 to 38 percent in 2015.