ACA Prods Employers To Consider New Alternatives

Large employers have long sought cost-effective solutions to deliver health care to their pre-65 retirees.

In the wake of health care reform, they may have found them. Over the next two years, more than half of the employers surveyed that provide health care to pre-65 retirees are planning significant changes to their medical benefits and how those benefits are delivered, according to data from global professional services company Towers Watson.

According to a company release, the Towers Watson 2014 Survey on Retiree Health Care Strategies reveals that employers are seeking solutions due to annual cost increases that are outpacing those of benefits for active employees and Medicare retirees, plus the availability of new individual coverage options under the Patient Protection and Affordable Care Act (PPACA). In particular, employers are looking for ways to leverage private exchange solutions that have delivered increased value to many Medicare retirees for their non-Medicare-eligible retirees.

"Pre-65 retiree medical plan sponsors have been eagerly awaiting options to deliver improved value to their early retirees. For too long, limited options and high costs have burdened employers and retirees alike. In part, these barriers have been addressed and now private exchanges can help retirees find coverage that best suits them," said Trevis Parson, chief health actuary, Towers Watson.

Cost trends for Medicare-eligible retirees after plan changes (3.9 percent) are similar to trends for active employees (4.0 percent). However, survey results show that trends for pre-65 retirees after plan changes are much higher (5.5 percent), highlighting the total cost of providing medical coverage to these younger retirees without the benefit of Medicare. In addition, 73 percent of employers offering medical benefits to retirees under 65 said their 2015 plan costs already exceed the cap for the plan.

"Many employers have concluded that their pre-65 retiree medical benefit programs are a costly obligation that fails to meet their current benefit or workforce management objectives," adds Parson.

In the absence of better solutions, most employers have fallen back on traditional methods to control the costs of pre-65 retiree medical plans. For 2015, 61 percent of employers surveyed that provide pre-65 health coverage changed plan design. Forty-two percent currently offer or have added account-based health plans (ABHPs) with high deductibles connected to tax-advantaged health savings accounts for the plan year 2015. Another 8 percent are considering ABHPs for 2016 or 2017. Also, plan sponsors have relied on cost shifting to retirees, using cap arrangements. Forty-five percent reported capping the company subsidy for pre-65 retirees. As a result, subsidy caps may divert employers' attention away from actively managing the plans more effectively on behalf of retirees.

Increasingly, employers are also interested in public exchanges as a new alternative to providing pre-65 medical benefits because of the federal subsidies potentially available to retirees based on family income. However, just 4 percent of employers said they have given some consideration to ending coverage and subsidies since retirees often have access to federally subsidized plans on public exchanges. When asked if they would end coverage but provide a private exchange solution that connects retirees to plans on the public exchanges, the percentage of employers that have considered this option rises to 17 percent. Notably, confidence is growing that public exchanges will be a viable alternative for employer- sponsored coverage for pre-Medicare retirees: While only 8 percent are confident for 2015, confidence rises sharply to 35 percent for 2017.

"Pre-65 retiree medical benefits are complex," said Joe Murad, managing director for Towers Watson's Exchange Solutions. "Companies have to consider the excise tax, new benefit options, provider networks and subsidies along with the retirement needs of their workforce. Fortunately, with guaranteed issue, the PPACA created a viable individual market for health insurance. Public exchanges simplify access to individual plans, and private exchange solutions help ease the experience of purchasing plans on public exchanges or directly from carriers. For the first time, employers can develop a pre-65 retiree medical strategy that meets the needs of retirees and helps them manage costs."

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