Are employers finally embracing public exchanges?
More than half (56%) of U.S. employers are confident that public exchanges will be a viable option for their pre-age 65 retirees who are not yet eligible for Medicare, according to a new Willis Towers Watson survey.
This finding is significant because it shows that employers see public exchanges as relatively stable after a rocky start. They also provide a solution to a longstanding problem for employers — how to provide more affordable health insurance to pre-65 retirees.
“About 25% of large U.S. employers offer pre- and post-age 65 retiree health benefits,” says Willis Towers Watson senior director of policy affairs John Barkett. “This is down from the late 1980s when upwards of two-thirds of employers provided this kind of coverage.”
Barkett notes that retiree health benefits are more common for companies that have been around for a long time, but it is unlikely that a Silicon Valley start-up less than 10 years old would offer similar coverage. Study results also reveal that in the face of continued pre-age 65 retiree health cost increases, 72% of employers plan moderate to significant changes in pre-age 65 retiree health benefits over the next four years.
Survey respondents predict cost increases for pre-age 65 retiree health care of 4.1% in 2016 after plan changes or 5.7% without plan changes. This compares with anticipated 2016 cost increases for Medicare-eligible retiree health care of 2% after plan changes or 3.3% before plan modifications. These expected cost increases factor in that some employers fund retiree benefits through fixed contributions made into healthcare reimbursement accounts.
Typically employers try to offer early retirees a plan that mimics the plan for active employees. But often retirees have to pay different premiums for coverage than active members. Managing these pre-age 65 plans is challenging because an older population generally requires more frequent healthcare. It is also easier for employers to promote wellness to their employees who are at work.
Barkett says employers contemplating plan modifications for pre-age 65 retirees will look at all of the possibilities and then try to make a decision that balances shifting costs to their retirees and getting the most out of their health plans. Program changes could range from changing cost sharing to requiring plan members to try lower-cost generic drugs before expensive brand name drugs are prescribed to adding financial disincentives that discourage visits to out of network healthcare providers.
While a typical employer plan for an early retiree population compares to a “gold” plan on the public exchanges which covers about 80% of expected costs for enrolled members, they also offer silver and bronze plans less generous benefits which are generally much cheaper than the employer-sponsored group plan. Instead of being medically underwritten, plans offered by public exchanges are underwritten by age and geography.
“When employers refer pre-age 65 retirees to public exchanges they provide a defined contribution lump sum to be used for health insurance premiums that has less to do with the cost of the plan and more to do with the retiree’s earnings over the course of their career with the company,” Barkett explains.
A consistent difference between an employer plan and public exchange plans is the size of the provider network in public exchange plans.
“Regardless of how generous the benefit is, many employer plans still have broad PPO type networks, whereas the public exchanges have migrated towards narrower networks to try to keep costs down in order to be more attractive to beneficiaries during open enrollment,” Barkett says. “That is a difference that that we know early retirees have to manage as they transition from a group plan to the individual market which is forcing people to make different consumer decisions.”
Because private exchanges cater to the group market, that’s where some employers are sending both early retirees and Medicare retirees. Private exchanges can help early retirees enroll in either a plan through the public exchanges or a plan available directly from carriers that private exchanges sell through their marketplace.
“What you get from a private exchange that you won’t get from a public exchange is a much higher touch concierge-like enrollment experience for either active employees or retirees including both web tools and advisors available by phone who know how much the employer is contributing and the types of plans available to retirees,” he says.
“Private exchanges have different lines of business. They offer group health plans for active workers, but they also serve as a connector to the individual market for retirees,” Barkett says. “Employers understand that employees and retirees today want choice when they are making decisions about how to get the best value for their benefit dollars but values differ between individuals.”
President Obama and other Democratic leaders are calling for a Medicare-style public option for people under the age of 65. However, such an option is generally opposed by the Republican leadership, and is therefore by no means a certainty in the near future.