ebr logo bar
October 2016  Volume 14, Number 10        

health benefits

Why Most Employers Are Eyeing Public Exchanges for Pre-Medicare Retiree Benefits

A new survey by Willis Towers Watson found more than half of U.S. employers are confident that public health exchanges will be a viable option for their pre-65 retiree coverage within two years. As costs for health plans continue to rise, the survey also found that nearly three-quarters of employers plan to make substantial changes to pre-65 retiree health benefits in the near future.

The employer shift to public exchanges is underway as costs for health plans continue to escalate. More than half—56 percent—of U.S. employers believe that public health insurance exchanges are a viable alternative to group health plans for pre-65 retirees, a new survey by Willis Towers Watson found. The survey further found that 72 percent of employers plan moderate to significant changes in pre-65 retiree health benefits over the next four years.

“Employers are seeking alternatives to providing their retirees with the same group health care coverage they offer active employees,” said John Barkett, senior director of public affairs at Willis Towers Watson, a global advisory, broking and solutions company, in a statement. “Many employers have already transitioned their post-65 retirees to original Medicare plus private individual Medicare plans, or are planning to. This keeps costs down and retiree satisfaction up. However, because Medicare is not available to younger retirees, employers are looking elsewhere for a solution.”

The survey revealed that employers expect a 4.1 percent cost increase for pre-65 retiree health coverage after plan changes, or 5.7 percent without plan changes this year. This compares with an expected 2 percent cost increase for Medicare-eligible retiree healthcare after plan changes, or 3.3 percent before plan changes this year. These expected cost increases factor in that some employers fund retiree benefits through fixed contributions made to health reimbursement arrangements.

In his Business Insurance article, “Employers look to public exchanges for pre-Medicare retiree benefits,” Jerry Geisel wrote that many employers are optimistic that public health insurance exchanges approved in the 2010 Affordable Care Act (and that went into effect in 2014) will serve as an alternative to the coverage they now offer their pre-Medicare-eligible retirees.

“An advantage to that approach: Lower-income pre-Medicare-eligible retirees—those with incomes between 100 percent and 400 percent of the federal poverty level—are eligible for federal premium subsidies for plans purchased in the public exchanges,” Geisel wrote. “For example, subsidies are available in 2016 for a family of four collectively earning up to $97,000. The public exchanges are not available to Medicare-eligible retirees.”

The Willis Towers Watson survey found that of employers offering pre-65 retiree medical coverage today, 67 percent offer pre-65 retirees a health insurance subsidy. If retirees are eligible for a federal subsidy, they can purchase plans on public exchanges with the subsidy. If not, they can still purchase plans from public exchanges without a federal subsidy or directly from health insurance companies with or without an employer subsidy.

“With employer confidence in public exchanges for pre-65 retirees growing, we expect the individual plan market to play an increasingly important role in employers being able to continue providing health benefits for that demographic,” Joe Murad, managing director for Individual Exchange Solutions at Willis Towers Watson, said in a statement.

In a recent Forbes article, Bruce Japsen noted that a number of large companies are shifting more costs onto retirees age 65 or older who are eligible for federal Medicare health insurance.

“Supplemental retiree health coverage once paid for by companies is shifting to a defined contribution approach or employers are unloading retiree coverage altogether,” Japsen wrote.

The Willis Towers Watson 2016 Emerging Trends in Health Care Survey was conducted in January and February of this year to gain insight into emerging trends in U.S. employer healthcare. The 467 employers that responded represent 12.1 million employees at midsize to large companies across the nation.

For more information on coverage options for your pre-Medicare retirees, please contact us.

More Small and Mid-Sized Firms Self-Insuring

Meanwhile, in another health insurance-related report, new research by the Employee Benefits Research Institute found that the share of private sector self-insured health plans and number of covered workers in self-insured health plans have increased among small- and midsized firms since enactment of the ACA in 2010. The percentage of private-sector establishments offering health plans at least one of which is self-insured has increased from 28.5 percent in 1996 to 39 percent in 2015.

While data do not demonstrate that ACA is conclusively the cause of the growth in self-insured plans, they “are consistent with the prediction that the ACA would cause more small- and midsized employers to adopt self-insured plans,” Paul Fronstin, director of EBRI’s Health Research and Education Program, said in a statement.

Employment-based health plans generally fall into one of two categories—fully insured plans or self-insured plans. The key distinction is whether the employer has decided to purchase an insurance contract to cover the costs and financial risks associated with its employee health plan, or to use its own funds to cover such costs.

Since the passage of the ACA, some commentators have speculated that an increasing number of small and mid-sized employers would convert their health plans from fully insured to self-insured plans. The rationale has appeared to be that several of the key ACA components—creditable coverage, affordability, essential benefits, and various taxes and fees—would drive up the cost of health coverage, thus possibly making self-insurance a more attractive option for many employers. To discuss your options, please contact us for more information.

[return to top]





In this issue:

This Just In...

Why Most Employers Are Eyeing Public Exchanges for Pre-Medicare Retiree Benefits

Employers Offer Increasingly Generous Benefit Packages to Top Earners

Average Age of Retirement Now 62—Up From 59

A Longer Lives Increase Need for Long-Term Care Insurance



The information presented and conclusions within are based upon our best judgment and analysis. It is not guaranteed information and does not necessarily reflect all available data. Web addresses are current at time of publication but subject to change. SmartsPro Marketing and The Insurance 411 do not engage in the solicitation, sale or management of securities or investments, nor does it make any recommendations on securities or investments. This material may not be quoted or reproduced in any form without publisher's permission. All rights reserved. ©2016 The Insurance 411. http://theinsurance411.com Tel. 877-762-7877.