Employers looking to cut costs of retiree health plans (though committed to benefits)

While committed to offering the health benefits, switching to ACA individual plans may be one strategy that companies use to continue supporting health benefits to retirees, says WTW survey.

Rising health care costs are leading more employers to consider changing their retiree health benefit plans, a new report has found. For some, this may include switching retirees from a group health insurance plan to an individual plan found on the marketplaces created by the Affordable Care Act (ACA).

Steps to cut costs for retiree group plans have already been implemented by many companies in recent years. And although estimates vary, providing retiree health plans has traditionally been more common among large employers, and is most common for public sector jobs.

The new study, by WTW, finds that 50% of employers surveyed are concerned by increases to health care costs for retirees on group plans. The switch to ACA individual plans may be one strategy that companies use to continue to support health benefits to retirees.

“With meaningful cost increases coming, employers aren’t sitting still. For now, they remain committed to offering retiree health care benefits and a positive retiree experience. But they’re looking for ways to provide them more cost effectively,” says Lindsay Hunter, senior director, Health & Benefits, WTW. “Employers are rightfully concerned about this growing burden and are studying all options, including private marketplaces.”

Large employers dominate the findings

The survey of 122 employers, representing 1.9 million employees overall, found that 50% of respondents said they were moderately or extremely concerned with rising retiree health care costs. A further 33% said they were somewhat concerned, and just 17% said they were slightly or not at all concerned.

Large employers dominated; 19% of organizations were listed as having 100 to 999 employees, 27% had 1,000 to 4,999 workers, 14% were in the 5,000 to 9,999 range, 19% were in the 10,000 to 24,999 range, and 21% had 25,000 or more employees.

Most of the employees affected by changes would be salaried workers (53%), the report said. Organizations in the public sector and education were the most effected (34%), followed by manufacturing (24%), and energy and utilities (13%). Companies in the areas of health care, financial services, wholesale and retail, and other sectors were all in single digits.

Higher costs are driving changes

The report found that some companies had already made changes to retiree health care benefits; 38% of organizations said they had made changes to some degree over the past three years. But considerably more groups are looking at changes in the near future: 63% of organizations said they planned to make changes in the next three years.

Of those planning changes, 77% said the current plan was too expensive for the organization to maintain, 61% cited high administrative burden, and 59% said their plan was presenting unacceptable financial risks.

Of the 22% of organizations considering replacing their group health plans for pre-Medicare eligible retirees with some type of individual plan, 75% said they would replace the group plan with financial support for purchasing an individual plan through an ACA marketplace or other private plan.

It’s a notable development; when the ACA was initially proposed, some critics said it would prompt a flood of group plan enrollees to ACA plans from employer-sponsored plans. That didn’t happen for the most part, but the recent passage of the Inflation Reduction Act has expanded ACA subsidies and coverage. So, moving pre-Medicare-eligible retirees into the ACA market could represent a new market for the ACA plans. Whether the numbers of new ACA enrollees would be truly significant remains to be seen.

“The recent passage of the Inflation Reduction Act is making private insurance marketplaces for individual coverage an even more attractive option for retiree benefits. In particular, the extension of premium tax credits and the improvements to Part D plans position private marketplaces to better offset rising health care costs for both organizations and their retirees,” saya Trevis Parson, chief actuary, Via Benefits, WTW.