Moving from an employer-sponsored plan to a Medicare plan does not have to be complicated. Money magazine talked with Mercer’s Kristin Parker and came up with five tips for retirees. A few of them raise interesting considerations for those about to retire that could result in waiting for Medicare coverage to get treatment.
- There is no family plan in Medicare. So if you and your spouse have different medical and prescription drug needs, you can each enroll in the plan that is best for you.
- Cap on out-of-pocket costs isn’t automatic. Original Medicare pays 80% of covered expenses, with no cap on what you might have to pay. Medigap and Medicare Advantage policies have out-of-pocket safeguards. It is important to understand that component of the Medicare supplement policy.
- Be strategic in scheduling some procedures. Those about to retire should compare out-of-pocket costs for a needed procedure under employer coverage versus Medicare. You may fare better with Medicare’s hospitalization coverage, for example, than with your current commercial plan.
- Wellness features may be different. Medicare’s programs tend to offer more in-person care from health professionals, while commercial programs often depend on telephone advice services.
- Research may help limit drug costs under Medicare. Most people can use a Medicare tool to compare the plans offered where they live to find the best fit for individual needs. Doing your Part D homework might provide better and cheaper coverage than through your employer plan.
Changing medical insurance upon retirement is a big deal to retirees. Employers who are looking to ease the transition for retirees can direct retirees to a resource to help them consider their options. Fifteen percent of employers contract with a retiree exchange to provide personalized support to Medicare eligible retirees. In addition, the States have established Senior Health Insurance Information Programs (SHIIP) to help seniors. Educational tips and personalized support can go a long way to helping a new retiree feel confident about their healthcare choices and decisions.
A growing number of employers are moving Medicare-eligible retirees to special retiree medical exchange platforms. Mercer’s National Survey of Employer-Sponsored Health Plans found that 27% of retiree plan sponsors are using an exchange to provide coverage to Medicare-eligible retirees in 2016, up sharply from just 15% two years ago. The programs are attractive because they offer a wider range of choices for retirees and also take on benefit administration.
Now, the combination of the public exchange and expansion of the individual market off-exchange has opened up opportunities for pre-Medicare-eligible retirees as well. The individual marketplace for pre-65 retirees is evolving. Characteristics typically associated with the Medicare marketplace -- rate stability, standardized plans, carrier availability and longevity -- appear to be more challenging in the pre-65 market.
Recently, several insurance companies have announced their plans to exit the public exchange in certain markets, raising questions with employers about the availability of exchange coverage and off-exchange coverage for pre-65 retirees. Michelle Andrews recently addressed this question in Kaiser Health News. While some states, like the District of Columbia, require the insurance company to offer coverage on the public exchange in order to offer coverage off-exchange, that is not true in every state. But while carrier participation in the pre-65 market has fluctuated, with some national carriers leaving the market or scaling back on their higher value plans, the total number of carriers has remained relatively balanced, as new entrants and smaller, regional carriers gain market presence.
Typically, employers considering a move to a pre-65 retiree exchange are seeking reductions in cost, risk, and administrative burden for this population. Or, based on a geographic footprint analysis, they have found that their pre-65 retirees will likely see savings and choice in the individual market. Often both are the case. It’s important to keep in mind that pre-65 individual coverage options may offer advantages over traditional group insurance in terms of participant personalization of choice and employer administration relief. Issues arising in a handful of markets around the country shouldn’t necessarily mean putting the brakes on a strategy to move retirees out of group plans when there may be a better alternative for them and the organization.
Given that this is an election year and the political landscape surrounding health care reform has been heating up, we can expect little change or significant change in the Affordable Care Act regulations depending on which party gains control of the Senate, House of Representatives, and the White House. For now, the public exchanges are in flux and could create challenges in the pre-65 retiree demographic. For employers looking for alternatives to a traditional group plan for pre-65 retirees, it’s important to do your homework.
Medicare Advantage premiums are expected to increase around 3.5% in 2017. While this increase is in line with what we see for active medical plans, we need to keep in mind that the target membership for these plans is retirees, many of whom are on fixed incomes. The Medicare Advantage plans are popular with seniors because they typically include some services not included in traditional Medicare. About a fifth of all large employers (21%) provide medical coverage for Medicare-eligible retirees today on an ongoing basis, and an additional 11% still provide a plan to a closed group of Medicare-eligible retirees. Employers have gravitated to private exchanges as a way to offer retiree medical coverage. Among those that sponsor retiree coverage, 13% now offer Medicare-eligible retirees a private exchange, up from 9% last year, and 15% will use an exchange for their 2017 plan year. An additional 18% of retiree plan sponsors say they are considering moving their Medicare-eligible retirees to a private exchange within five years.
This is an interesting piece on the potential for some retirees to take advantage of subsidies in the public exchange even after they turn 65. Most won’t qualify for subsidies after becoming eligible for Medicare, however, which could cause problems for a pre-Medicare-eligible retiree who has been receiving a subsidy and doesn’t realize their status changes at age 65. The government doesn’t provide much warning, so this might be a good topic to address in retiree medical communications.
While the percentage of US employers offering retiree medical coverage fell sharply during the 1990s, the downward trend leveled off in the early 2000s. Our most recent survey of employer-sponsored health plans found that about a fourth of all large employers (500 or more employees) and about half of those with 20,000 or more employees offer retiree medical benefits for which new hires are eligible (substantially more continue to cover a closed group of current or future retirees). Many employers that still offer retiree coverage are committed to doing so, whether to honor past commitments, to gain an edge in the competition for talent or as a matter of corporate philosophy. In deciding whether to continue, cut back, or terminate retiree plans, sponsors must keep in mind that older employees see lack of coverage as a barrier to retirement. Our survey results consistently show that the median age at retirement is higher in organizations that don’t offer retiree coverage than in those that do — 65 years compared to 62.
Fortunately, sponsors have new options as they seek to update their programs to ensure that they are sustainable. In the past, offering retiree medical benefits meant sponsoring, administering, com-municating, and perhaps financing the plans. Most often employers self-funded retiree plans, exposing themselves to large claim risks. With the advent of prescription drug coverage for Medicare retirees in 2006 and the opening of public exchanges to pre-Medicare-eligible retirees in 2014, employers gained viable options for fully insured, guaranteed-issue individual coverage for their retirees, often at a lower cost for both parties. For these plans, employers were only responsible for subsidizing the coverage, if they chose. In recent years, Medicare Advantage-Prescription Drug (MA-PD) plans have offered compre¬hensive medical and drug coverage at highly attractive rates for many employers. Private exchanges have proven to be an attractive option for retirees. They are most commonly used to provide coverage to Medicare-eligible retirees: 15% of retiree plan sponsors offer a private exchange to Medicare-eligible retirees, and an additional 17% are considering it.
About a fifth of retiree plan sponsors (22%) provide separate medical plans for actives and retirees; more typi¬cally actives and retirees are offered at least some of the same plans. Consequently, the portion of retirees with access to CDHPs is growing. In 2014, 25% of sponsors offered an HSA-based CDHP to pre-Medicare-eligible retirees, up from 21% in 2013. While CDHPs for Medicare-eligible retirees are less common, offerings grew sharply in 2014, rising to 18% of retiree sponsors, up from just 7%. When active employees have experience with HSAs for several years before they retire, providing them with the same option (usually without employer HSA funding) after makes sense.
Survey results suggest that all these options are adding up to cost savings for employers. In our 2014 survey, among the 121 large sponsors providing two years of cost data for pre-Medicare-eligible retirees, cost averaged $12,301 per retiree in 2014, an increase of just 1.7% from 2013. For the 94 large sponsors providing data for their Medicare-eligible retirees, cost actually decreased by 3.9%, to an average of $5,118 per retiree. While one reason for this surprising result may be slow growth in prescription drug cost, another might be a change in the mix of plans offered, if some employers in this group with very high-cost plans in 2013 choose to shift to an MA-PD plan or another lower-cost option in 2014.
All of which provides food for thought for employers that may have once thought the only solution to the retiree medical benefit cost problem was to drop coverage.
The slow growth in Medicare spending has meant slow growth in premiums for Medicare Advantage Plans. With the average monthly premium rising by just $2.95 in 2015 -- and 61% of enrollees seeing no increase at all -- CMS is projecting that enrollment will grow by about 3% in 2015, to reach an all-time high of just over 16 million. This article suggests that controls on Medicare spending built into the ACA are one reason for the moderate growth in premiums, but another may be that enrollees are choosing less expensive plans, with more restrictive pharmacy benefits and higher out-of-pocket costs. Retiree medical exchanges make it easier for employers to offer a range of Medicare Advantage plans, giving retirees the opportunity to select the level of coverage that suits their needs. For example, Mercer Marketplace Medicare Exchange (Transition Assist) includes a wide variety of individual Medicare Advantage options offered by national and local carriers. The availability varies by geography, but most retirees will have two to five Medicare Advantage options, some with zero premium.
Employers are reevaluating their retiree medical offerings in light of health reform, which has both improved existing Medicare coverage for retirees and introduced the option of buying coverage on the public exchange for retirees not yet eligible for Medicare.
Mercer’s National Survey of Employer-Sponsored Health Plans 2013 found that just 22% of large employers (those with 500 or more employees) sponsor or administer an ongoing medical plan for pre-Medicare-eligible retirees, down from 24% in 2012, and just 17% for Medicare-eligible retirees. (This doesn’t include employers that offer coverage to a closed group of current or future retirees but not to new hires.) The larger the organization, the more likely it is to offer retiree medical benefits. Still, even some very large employers are closing their plans to new hires. Among those with 20,000 or more employees, 43% offer an ongoing plan for pre-Medicare-eligible retirees, down from 48% in 2012, and 32% offer an ongoing plan for Medicare-eligible retirees, down from 37%.
Some employers now provide retirees with a private exchange or a subsidy to purchase coverage on their own: 5% for pre-Medicare-eligible retirees and 6% for Medicare-eligible retirees. Among very large employers, private exchanges or subsidies are provided to pre-Medicare-eligible retirees by 8% and to Medicare-eligible retirees by 15%.
These survey results suggest that public and private exchanges will play an increasingly important role in retiree coverage. In 2013, fewer than half of current retiree health plan sponsors (49%) believed they would continue to offer the retiree plan for at least the next five years. Of those that expect to terminate their retiree plan (or aren’t sure), about one-third say they would provide pre-Medicare-eligible retirees with a subsidy to purchase coverage in a public exchange. These sponsors likely currently contribute to the cost of coverage. In organizations where the employer sponsors a plan but requires retirees to pay the full cost of coverage, members might save money by purchasing coverage in a public exchange even without an employer subsidy.
Interest in private exchanges for pre-Medicare-eligible retirees is also growing: fully one-third of retiree plan sponsors say they are considering moving to a private exchange for their early retirees in the next five years. Private exchanges allow an employer to better manage their spending and simplify administration while delivering flexibility and choice to retirees. Members have easy access to attractive insurance products that meet other important needs (life, accident, disability, critical illness, auto, etc.) and more control over how they spend their benefit dollars.
For Medicare-eligible retirees, private exchanges are already an attractive option and poised for growth. About a quarter of retiree plan sponsors (24%) are considering moving to a private exchange for Medicare-eligible retirees within five years. Interest is greatest among the largest employers: Among those with 20,000 or more employees, 44% of those currently offering coverage are considering an exchange within five years.
In making decisions about whether to continue, cut back, or terminate their plans, retiree plan sponsors should consider that retirement patterns are affected by the availability of coverage. Among employers offering retiree benefits, the median retirement age in 2012 was 62; among employers without retiree coverage, the median retirement age was 65. This gap suggests that older employees see the lack of coverage as a barrier to retirement. However, this could change now that pre-Medicare-eligible retirees are able to purchase coverage on the public exchanges.
Employers with retiree medical programs are starting to update their strategies by moving post-65 retirees to private exchanges. One major benefit of a private exchange is a much broader range of choices for retirees; the typical employer program today includes only one or two options. In addition, private exchange offerings tend to be priced more favorably. Finally, the exchange will support members as they navigate their choices, and help them find the best match for their specific health needs. These add up to a win-win solution for the employer and the retiree.
Many of the employers that still offer medical coverage to pre-Medicare-eligible retirees are considering dropping it now that the public health exchanges present a viable alternative source of coverage. Employers see that the combination of options in the public health exchanges (as well as competitive options "off-exchange") and the 3-to-1 rating rules can benefit early retirees. According to the federal government’s latest figures, Americans ages 55 to 64 make up 31 percent of new enrollees in public health insurance marketplaces, the largest segment by age group. Particularly for the more than one-third of retiree medical plan sponsors that offer coverage on an access-only basis, the popularity of the exchanges among older Americans may point to a win-win solution.