ACA Prompts Employers to Consider New Alternatives for Pre-65 Retiree Medical Benefits

January 15, 2015

Recent data from Towers Watson revealed that by 2017, 53% of employers that sponsor health care programs for pre-65 retirees will reassess their approach.

“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.

Confidence is growing that public exchanges will be a viable alternative for employer-sponsored coverage for pre-Medicare retirees. While only 8% are confident for 2015, confidence rises sharply to 35% for 2017.

Looking for alternatives to traditional methods of providing coverage to pre-Medicare retirees stems from the high cost of coverage for this segment of the population.

While annual cost increases for Medicare-eligible retirees, without the benefit of Medicare but after plan changes (3.9%), are similar to those for active employees (4.0%), increases for pre-65 retirees after plan changes are much higher (5.5%). Further, 73% of employers offering medical benefits to retirees under 65 said their 2015 plan costs already exceed the cap for the plan.

As a result, employers are actively considering alternatives to current coverage models and making changes. In 2015, 61% of employers surveyed changed plan designs for their pre-65 retirees.

Considering alternatives should not be mistaken for considering ending coverage entirely. Just 4% of employers said they have given some consideration to ending coverage and subsidies — even though these retirees often have access to federally subsidized plans on public exchanges.

Even employers who are looking to end coverage do not want to leave their employees without options. Given the choice to 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%.

“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.”

Click here for the full release.

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