Most Employers Consider Moving Retirees to the Individual Exchange Market

Sixty-three percent of employers that are planning changes to retiree health coverage are considering or are in the process of moving retirees to individual coverage through a health exchange partnership. About two-thirds of Medicare-eligible retirees in the U.S. are already enrolled in a Medicare plan through the individual market.

John Grosso of Aon Hewitt said, “Changes to the Medicare Part D and Medicare Advantage programs, along with choice, competition, and generally favorable rating rules, have made the individual market very cost-effective compared to the group insurance program. We expect that there will be a similar opportunity for pre-Medicare retirees beginning in 2014.”

Sixty-five percent of plan sponsors would at least consider leveraging an exchange strategy for their pre-Medicare retirees some time after 2013, with or without a subsidy, in order to take advantage of the opportunities created through new state-sponsored health care exchanges and additional PPACA market reforms.

Employers are pursuing two other general retiree health care strategies in response to provisions under the PPACA. Sixty-one percent of employers expect to change their Medicare Part D strategy due the elimination of the tax-favored status of the retiree drug subsidy under the PPACA. Seventeen percent of those plan sponsors made changes in 2011 or 2012, another 11% will make changes for 2013, and 72% are exploring what actions to take and when.  Sixty-two percent of the employers that have decided changes their retiree drug program are moving forward with a group-based Medicare Part D prescription drug plan. Thirty-two percent are leveraging the individual Medicare-eligible health insurance market in some manner.

Changes to the tax-favored status of the retiree drug subsidy and improvements to the Medicare Part D program are driving significant change in the employer-sponsored retiree health care market. These enhancements allow for cost savings for plan sponsors and retirees while preserving retiree benefits, explained Grosso.

Twenty-nine percent of plan sponsors expect to change plan features, such as deductibles, copayments, and coinsurance; 22% favor sourcing coverage through the state exchanges, and 18% favor changing retiree premium cost-sharing in some way.

While most employers say they will need to manage exposure to excise taxes, 69% don’t expect to implement these actions in the near-term. “Even though the excise tax is not scheduled to take effect until 2018, plan sponsors must reflect any anticipated excise tax exposure on their financial statements. Some employers have already made changes to their retiree strategy to limit this impact, but others with higher cost plans should, at a minimum, evaluate how they can preserve the tax efficiency of their program on behalf of the plan sponsor and participating retirees,” said Milind Desai, retirement actuary at Aon Hewitt. For more information,

Last Updated 05/25/2022

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