Companies are shifting their attention to health coverage for their pre-65 retiree population and exploring the opportunities public exchanges provide this population, now that the Supreme Court has upheld subsides on the federally-facilitated health insurance marketplace.
In a recent survey by Mercer, 45% of all respondents and 54% of respondents with 5,000 plus employees, reported they expect to steer pre-Medicare eligible retirees to the public exchanges. Since coverage for a retiree population traditionally costs more than an active population, this is a potential win-win for employers and their pre-65 retiree population, Mercer notes. While employers have considered these strategies for a long time, many were playing wait and see until the King v. Burwell decision says Tracy Watts, a senior partner at Mercer.
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Two-thirds of companies are considering altering their pre-65 retiree health strategies over the next few years, data from Aon Hewitt show. Of those, 35% favor sourcing health coverage through the public exchanges under a defined contribution approach. However, 28% are considering eliminating pre-65 retiree coverage and subsides altogether.
The decision that subsidies are legal is very good news for plan sponsors who want to move their pre-65 retiree population to the individual market. [The Supreme Court] just removed one of the biggest concerns about stability in the market, says John Grosso, senior vice president of health and benefits at Aon. Many employers are planning to transition pre-65 retirees from group-based insurance to the individual public exchange to take full advantage of the choice, competition, favorable premiums and federal subsidies.
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But, they hesitated to do so given the uncertainty of King v. Burwell, he adds. Now, with the case decided, its likely we could see aggressive movement from companies in the 2016 to 2018 timeframe.
Tax issues
Even as King v. Burwell created the pull, meaning there is something good to be had out here in the open market, for this population, Grosso explains, the Cadillac Tax, which begins in 2018, remains the push.
With that tax staring us in the eyes, it will have a material financial impact on pre-Medicare group insurance, Grosso says. Since the excise tax does not apply to individual insurance, sending this population to the individual market makes sense, he adds, to not only take advantage of the new stablier market, but also to avoid that whole excise tax on the group program.
When employers consider these options, it is important for an adviser to work closely with them on the details. For example, if an employer is offering this population a subsidy to purchase coverage, it would prohibit the retiree from receiving a subsidy on the federal marketplace, if they are eligible for one. As a result, employers should give this population the ability to opt-out of receiving a subsidy, Watts says.
