Employers Are Looking At Private Exchanges for Pre-65 Retirees

Large employers are looking at private exchange solutions for their pre-65 retirees, according to a survey by Towers Watson. Over the next two years, more than half of the employers that provide health care to pre-65 retirees are planning significant changes to their medical benefits.  Many employers have concluded that their costly pre-65 retiree medical benefit programs fail to meet their benefit or workforce management objectives.

Trevis Parson, chief health actuary of Towers Watson said “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.”

Cost trends for Medicare-eligible retirees after plan changes (3.9%) are similar to trends for active employees (4%). However, trends for pre-65 retirees after plan changes are much higher (5.5%), highlighting the total cost of providing medical coverage to these younger retirees without the benefit of Medicare. In addition, 73% of employers offering medical benefits to retirees under 65 said their 2015 plan costs already exceed the cap for the plan.

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% of employers that provide pre-65 health coverage changed plan design. Forty-two percent offer account-based health plans (ABHPs) with high deductibles connected to tax-advantaged health savings accounts for the plan year 2015. Another 8% are considering ABHPs for 2016 or 2017. Also, many plan sponsors rely on cost shifting to retirees, using cap arrangements. Forty-five percent cap 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 interested in public exchanges as an alternative to providing pre-65 medical benefits. However, just 4% of employers have considered ending coverage and subsidies since retirees often have access to federally subsidized plans on public exchanges. Seventy percent would end coverage, but provide a private exchange solution that connects retirees to plans on the public exchanges. 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.

Joe Murad, managing director for Towers Watson’s Exchange Solutions said, “Pre-65 retiree medical benefits are complex. 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 ACA 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

Last Updated 10/20/2021

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