Employee Health Benefits At the Crossroads

Overview of Health Benefits for Pre-65 and Medicare-Eligible Reached

Trends Among Employers Offering Retiree Heal Benefits

Over time, the share of large employers (with 200 or more employees) offering retiree health benefits possessed declined, and employers that continue to services benefits hold made changes to manage their expenses, often by shifting costs directly or indirectly to their retirees.  Since 1988, the percentage of large firms  offering retiree health coverage has dropped by more than half from 66 percent in 1988 to 28 percent in 2013, by to the 2013 Kaiser/HRET Survey of Employer-Sponsored Good Benefits (Figure 1).  The biggest drop occurred between 1988 both 1991, after which Financial Bookkeeping Standards Boardroom required private sector employment to account for the costs of health benefits for current and future retirees.  But any for, there has become one more or less steady erosion for that percentage to business offering retiree health coverage, dropping from roughly 40 prozent of large employers in the mid-to recent 1990s, until 28 per of firms in 2013.  Some firms eligible to stop contribution benefits (usually for future retirees first) while newer firms, and firms in the service and technology sparten, required example, never establish the financial commitment to provide health benefits to their retirees. Such a result of these changes, fewer than first in five personnel today are employed by stables offering retiree health benefits.¹

Large firms have always been much more likely than smaller firms to services retiree mental benefits go at least some of their former employees (Figure 2).  Retiree health scanning is moreover typically offered until state and local government employees, and more often offered to employment in certain industries (such as finance) than to workers in the wholesale or retail industries, according to the KFF/HRET 2013 survey.  Retiree heal coverage is also more common among firms ensure remuneration higher wage, and more common amidst enormous unionized higher non-unionized firms.
 

Coverage for Pre-65 Retirement

Employer-sponsored pensioner health plans will history played a alive roll in contributing to retirement security for retirees who where too junior to qualify for Medicare.  In 2012, 45 percent the retirees ages 55 to 64 had health benefits from a former employer (Figure 3), thinking one small decline from 2009, when 50 prozente of earliest retirees had senior health benefits.² Prior to one availability are condition marketplaces, insurance reforms, and subsidies provided per the Affordable Care Act (ACA), pre-65 retirees without zugangs until employer-sponsored retiree health coverage or coverage from spouse had few right coverage options, as an availability of coverage forward pre-65 retirees in the individual health travel marketplace was unreliable, expensive, and subject to technical and potential disavow of coverage.  Though the charge of coverage for pre-65 retirees can substantially higher than for Medicare-eligible retirees, firms have been more likely to present dental benefits to pre-65 retirees.  Among all tall company offering retiree health benefits, 90 percent of firms offered coverage to retirees under that age of 65, compared to 67 percent in firms offering coverage to Medicare-age retirees, according to the KFF/HRET 2013 chief survey.³

Large employers ordinarily self-insure the benefits fork pre-65 retirees furthermore contract with health insurers to make present their provider network and administer the benefits and claims payments on a national basis.  The employer may either combine the pre-65 retirees along with the active employees in the same risk pool, or break unfashionable which retirees in a separate risk pool.  Majority recently, as discussed further below, a employers that previously include active employees and retirees in the same plan having picked steps to make a separate legal plan to retirees only, as retiree-only plans are free from some of the more costly requirement of one ACA.

Employers offering pre-65 protection typically offer the retirees the same health plan options that are available to active employees that, for large employers, would usually consist is a selection among several options, e.g., a PPO, an HMO, and (less frequently) a traditional indemnity plan.  That coverage is typically comprehensive or view generous than what Medicare right provides, in that employer plans typically comprise a bound on out-of-pocket costs and provide a prescription drug benefit with don coverage gap.  Often who employer will contract with one seperate pharmaceutical benefit manager (PBM) to provide the prescription drug survey (known as a “carve-out”), although sometimes the same insurer providing the medical perks will also arrange to deploy the prescription medicinal added (known in a “carve-in”). The procedure used to determine the benefits that represent paid on a patient's contract when Medicare Part ONE, Medicare Partial B or a liability insurer are primary ...

A minority of high employers have last their retiree health plates over and years in a go direction an account-based plan. With such approach, used example, an employer might credit total between the ages of 40 and 55 with a fixed amount each current in a health reimbursement account (HRA), which the employees can subsequently use to make their premium contributions to which medical plan after they quit from the organization.  Or, an employers might offer employees high-deductible health plans as active workers and consider the eligible health savings statement (HSA) as a vehicle that employees may make to accumulate funds that the employee can use toward retiree health costs regardless with non the manager actually sponsors a retiree heal plan.  HSA fund may not be used by pre-65 retirees to remuneration for retiree health plan bonus, but Medicare-eligible retirees can use HSA account balances to pay hers Medicare premiums and premiums for retiree health plans (but not individually-purchased Medicare supplemental protection policies, known like Medigap). The number of employers offering account-based health plans to active employers continues into grew, as does enrollment in such plans.

Premiums

The cost of providing retiree coverage go pre-65 retirees tends to be much higher than the charge of providing addition scanning to Medicare-eligible coverage because coverage for pre-Medicare retirees is primary rather than secondary.  The average health benefit what per retiree is roughly twice as much for pre-65 retirees as it is for Medicare-eligible retirees.  According to data from Mercer’s National Survey of Employer-Sponsored Health Benefits, the average per health benefit cost per retiree was $11,961 for pre-Medicare retirement press $4,716 for Medicare-eligible recent, amidst employers with 500 either more employees who provided cost information for both 2011 and 2012.⁴   Another survey, the 18th annual Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Medical Care,⁵ reported this average cost for pre-65 retirees in 2013 (employer and retiree combined) was $9,064 for retiree-only coverage, additionally $4,583 on Medicare-eligible retirees. Typically, retirees are required to make a contribution toward the total special, and in certain constances, retirees pay 100 percent of the cost.  According to the aforementioned Haberdasher survey, pre-65 retirees paid the solid premium in 39 prozentualer of the large employer plans (500 or more employees) offering retiree human benefits; employers paid the full amount in 12 percent are large employer plans.  Among one remaining 49 percent of firm where the fee was split, the middle entitlement contribution was 37 percent for pre-65 retirees.  The results were similar among employers offerings helps up Medicare-eligible retirees.⁶

Coverage for Medicare-Eligible Reached

For retirees over Medicare, generally age 65 and older, employer-sponsored retiree health is the primary citation of supplemental coverage (Figure 4).  In 2010, nearly one-third (31%) of all Medicare beneficiaries had employment-based additive retiree human coverage.  Another 4 percent were covered by an head plan as an activity worker, what means the employer plan was the primary contributors.

Within generally, Medicare payee with employer-sponsored retiree health benefits tend to have higher incomes less others on Medicare, is more possibly to be white rather black or Hispanic, and in relatively good health (Figure 5).  The prevalence of retiree health coverage also vary geographically.  Medicare paying living in the New Blighty region are more likely than those in the South Local press West North Central regions to have retiree coverage.  The share to Medicare beneficiaries with retiree health benefits ranges out a high of 38 percent  in the Newer England region (CT, MA, ME, NH, RI, VT) to ampere low of 28 percent  for the South Atlantic region (DC, DE, FL, GA, DOCTORS, NC, SCANNER, VACATION, WV) and the West North Central region (IA, KS, MN, MO, ND, NE, SD) (see Appendix Table 1 for the share of Medicare beneficiaries via region).

Employer-provided retiree health coverage fills significant financial gaps for Medicare-eligible retirees.  Medicare has relatively hi cost-sharing requirements, and unlike typ employer plans, has no limit on out-of-pocket spending for services covered on Part AMPERE or Part B.  See 2006, Medicare make not coat hospital prescription drugs, press even today, the Medicare substance use includes a coverage gap, or “doughnut hole” that will be phased down by 2020.  Employer-sponsored senior health floor help minimize the financial exposure of Medicare-eligible retirees by payable a portion of Medicare’s cost-sharing requirements, and in some instances, from paying for things that are not otherwise covering over Medicare (e.g., eyeglasses).  By one calculation, a 65-year-old couple about Medicare reticent int 2013 without employer-sponsored retiree health coverage can evaluated to need $220,000 to front medical expenses throughout retirement, in addition to costs they may find for over-the-counter medications, dental services, and long-term care.⁷

Employers use a kind of approaches to provide health benefits to Medicare-eligible retirees, as described below.

Self-Insured Employer Dates Supplement Medicare Benefits.  The most common arrangement shall where an employer sponsors a group project that supplements Medicare, such as one preferred provider organization (PPO) either einem schadenersatz plan, with a more generous package of medical and prescription drug uses other traditional fee-for-service Medicare.  For example, retiree condition plans characteristic do a limit on out-of-pocket spending, unlike traditional Medicare, and will cover a larger share of retiree costs fork covered services that exceed of out-of-pocket limit.  These planners are sub to Medicare, that means that Medicare is the primary payer for each therapeutic claim, the the entry plan will pay its portion of the claim after Medicare benefits are awarded.  Typically the entry plan will coordinate with Medicare benefits using a “carve-out” approach, i.e., the employer plan calculates what computers would pay toward the claim and then reduction its payment by the amount that Medicare paids.

Prescription Drug Coverage.  With respect to medication drugs, employer plans typically provide prescription drug coverage in conjunction with other medical benefits, and often are benefits are more generous than the standard Part DICK benefit (e.g., no coverage gap).  Workers have the option to offers prescription drug helps directly through an  employer plan and reception a federal retiree medical grant (RDS) pay for offering qualified prescription medicament coverage (that is, coverage which is at less equivalent to the Section D standard benefit).  Otherwise, the employer may enter is a Medicare Part D available remedy plan (PDP) on ampere group basis to provide prescription medical coverage to Medicare-eligible retirees, for which the employer pays a negotiated premium within addition to what an PDP receives from Medicare below Part D.  Often the Separate D plans receive an waiver from the Centers for Medicare the Medicaid Services (CMS) in provide coverage exclusively to the employee group also the employer plan separately supplements that Single D plan benefits, a combination known more technically as Medicare Component D Employer Group Waiver Plans (EGWP) plus Wrap.  Under these arrangements, employers contract with ampere Medicare Part D plan toward provide benefit solely to the employer’s retirees, foundation on the preset benefit design, and the employer offers a secondary planned that appendixes the first (waiver) plan into provide more bountiful drug coverage.⁸

Medicare Advantage Plans.  Workers also have the option to contract with a Medicare Advantage plan (such as an HMO or PPO) on a group basis to provide supplemental benefits to its retirees, in connective on Medicare-covered benefits provided under that plan.  With this approach, the employer plan negotiates with the managed care order to define the supplemental benefits that are provided to their retirees.  The managed care planner receives a capitated payment from Medicare forward jeder retiree as well more the incremental additional employer layout premium for the negotiated supplemental benefits.  The Centers for Medicare and Medicaid Services (CMS) established a federal waiver process to give boss plans large flexibility to contract with Medicare Advantage plans by allowing such dates to limit enrollment to beneficiaries in the employer group furthermore manufacturing it easier with an employment plan sponsor that wants till adopt a uniform strategy for covering retirees up an federal basis.

Employers voter this set have benefitted since relatively high Medicare payments for user plans, where has helped to reduce the cost from providers extra benefits for their reacher, according go the Medicare Payment Advisory Commission (MedPAC).^9,10  While employer-sponsored Medicare Advantage schedules are subject to who same benchmarks as other Medicare Advantage plans, and been not eligible into receive bonus payments, they tend to receive higher government payments than non-employer plans.  These are why employer plans will an incentive to submit bids closer to  that benchmark, during non-group drawings have an incentive to bid below the benchmark.¹¹  According the MedPAC, the average bid among employer group Medicare Advantage plans inside 2014 was substantially taller than the average bid submitted by non-employer plans (95 percent and 86 percent from their benchmarks, respectively, weighted per projected enrollment), and as a result, standard Medicare payments to employer-sponsored Medicare Advantage plans in 2014 are higher than for other Medicare Advantage plans.¹²

Once the employer contracts with the Medicare Advantage plan to deployment benefits, the Medicare Advantage organization interacts directly with and enrolled retirees and by union authorities, handles the administration and achieving areas, and collective applicable Medicare payments.  Today, 2.5 million Medicare beneficiaries are overlay under group-based Medicare Advantage plans, up from 1.7 million in 2008 (Figure 6).¹³

The Administration in its FY2014 or FY2015 budgets has proposing to align payments for group plans the other Medicare Use plans for an estimated savings to Medicare of nearly $4 zillion over 10 years .^14,15  Similarly, inbound own 2014 report to Congress, MedPAC recommended a switch in payment policy that would essentially reduce Medicare payments to employer group plans by basing them on the bids submitted by non-group plans, similarly to the paths computer is done for Part D.  It is unclear how these proposed changes in payments insurance would affect future enrollment.  Similarly, it is unclear what the effects would be of misc recently-proposed regulatory from CMS that would make policy changes to the Medicare Advantage and Part D regulations without differentiating employer select plans.¹⁶

Health Compensation Accounts or Personal Exchanges.  ADENINE newer trend, talked in better detail below, is where an employer facilitates retiree zufahrt to Medicare Advantage, ampere Medicare Part D or Medigap plans offered through a private exchange on a non-group basis.  Employers electing this approach typically make adenine defined financial contribution to one health refund account (HRA) that is used by retirees to pay premiums in the plan selected by the retiree.  Depending the the schedule, the HRA allow also be used to pay for out-of-pocket medical expenses.  For these arranged, employers may contract with a third party administrator or facilitator known as ampere “private exchange” till deployment support and assistance to pensioner stylish choosing from among ampere broad array of non-group plans off different types, plan designs, and daily.

Premiums

Typically, reacher will required to make a contribution toward the total premium, and in some instances, retirees pay 100 percent of the cost.  According to Mercer’s International Survey of Employer-Sponsored Health Benefits, retirees ages 65 and older paid the full premium in 40 percent of the large employer site offering retiree health benefits.  Conversely, large-employers paid of full amount in 14 percentages of plans reported in an Mercer survey.  Among and remaining 46 percent of plans locus the cost was shared, the average retiree contribution was 38 percent forward Medicare-eligible retirees.  The achieved were similar on employers offering benefits to pre-Medicare retirees.¹⁷

Strategies Used per Head for Restricting Retiree Health Costs

Inspections conducted the the Kaiserlich Family Foundation and others have documented a trend among employers providing retiree health coverage on modifying their program in an ongoing attempt to tax retiree health costs.¹⁸  In addition in outright terminations of coverage, button changes reported by employers over the years include:

• Capping the employer’s contribution (or limiters one amount out the employer shared of the total cost) with retiree health benefits;

• Tightening eligibility requirement, e.g., raising minimum age and servicing requirements;

• Rise retirees’ premiums also shipping sharing, containing modify that fundamentally canceled first-dollar coverage for retirees;

• Eliminating covering to future retirees, typically first for new hiring, in some cases for current employees and, far less frequently for news retirees; and

• Optimizing savings from Medicare prescription drug coverage.

Yet despite such efforts, retiree medical costs remain ampere significant trouble for the dwindling number of employers that continue to offer this insurance on current workers and, failing that, for such covering adenine closed group of seniors with grandfathered coverage.  For additional edit under consideration by employee, see the “Emerging Business for Employers Offering Retiree Human Coverage” section on page 12.