With the new changes under the Patient Protection and Affordable Care Act, more employers are considering switching retirees to an exchange-based individual market system, says John Grosso, health care actuary and leader of retiree health care sub-practice at Aon Hewitt, a global human resources solutions provider.
In fact, according to a recent Aon Hewitt survey, six in 10 employers have reconsidered or are now reconsidering their retiree health care strategies and other alternatives. Among the respondents that are open to changes, 63 percent are implementing or weighing a move toward an individual market strategy that would allow them to leverage a health exchange partnership. Another 65 percent of respondents report that they will consider moving pre-Medicare retirees to an exchange strategy after 2013 – even without a subsidy.
The changes in PPACA that are prompting more employers to reconsider their retiree health care benefits are both regarding Medicare, Grosso says. One change closes the Medicare Part D doughnut hole for a 10-year period by implementing a new 50 percent pharmaceutical manufacturer discount on brand drugs. Under this rule change, it is expected that the exchange-based individual market system will look similar to plans offered today through the group structure by 2020. The other PPACA change is designed to bring greater efficiency to Medicare Advantage by changing the way the plans are reimbursed. The intent of this change is to cause the more efficient plans to rise to the top while the weaker plans disappear or consolidate into other plans.
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For employees, an exchange-based individual market system gives retirees greater selection than they would receive in a group environment, Grosso says. In an exchange-based individual market system, there are so many plan designs, insurers, premium variations and covered medications that it would be unrealistic for an employer to provide that many offerings in a group structure. This means an exchange-based individual market system faces a more competitive environment, which creates a cost-effective market opportunity for retirees.
The downside of an exchange-based individual market system for employees is that this places more responsibility on them when it comes to understanding their options, Grosso says. With group plans, retirees didn't have to worry about analyzing their plan options, and that can be intimidating. However, more private health care exchanges are becoming available, and those can help employees understand and choose the best plans for their needs.
Moving to an exchange-based individual market system is especially beneficial to employers because it simplifies the benefits strategy, Grosso says. With an exchange-based individual market system, employers no longer must provide, manage and administer the group-based program. Between vendor selection, plan design strategy and enrollment, overseeing a group-based program takes a great deal of responsibility. Instead, employers can simply provide a defined-contribution premium subsidy and partner with one of the exchange platforms.
"The market provides those plan choices, and a private administrative platform fills all those administrative roles," Grosso says. "The private exchange can help the retirees understand their options that are there, evaluate them, enroll them and provide a whole host of customer service benefits the employer once provided."
Another advantage to an exchange-based individual market system is that employers can subsidize the individual market to a lower extent than the group market without putting retirees at a disadvantage, Grosso says. Because of the greater competition, high federal subsidies for Medicare Part D and lower cost of Medicare Advantage, employers do not have to provide more subsidies to offer retirees the same plan or better.
While an exchange-based individual market system has its advantages, employers should be ready for employee noise that could come with it, Grosso says. Changes to health care benefits are often met with disdain, and to successfully move into this new system, employers must communicate exactly how the exchange-based individual market works and why it's typically a better option.
"There's anxiety over the newness of this, and a private exchange platform or individual market strategy means very different things to people at times," Grosso says. "Some may view it as a termination strategy or that the employer is abandoning the retirees and dumping them on the individual market when, in the overwhelming majority of cases, nothing can be further from the truth. Employers need to make sure retirees understand this is not a termination of the plan; it's just changing the way in which they get the benefit."
Moving forward, Grosso believes employers will continue to look at the exchange-based individual market system as an option. Employers have been looking for ways to reform their retiree benefits, and a strategy that allows for more flexibility while maintaining costs and coverage just might be the plan employers have been hoping to find.
"The exchange-based individual market is an opportunity that plan sponsors have been looking for some time now, and we think this can be positioned in a win-win manner that benefits the plan sponsor as well as retirees."
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