More employers moving retirees to Medicare Advantage: Here’s why

For the small percentage of employers who offer health care coverage to retirees, an increasing percentage are leveraging Medicare Advantage plans – a shift that could impact retiree access to services as well as federal spending on Medicare.

According to Kaiser Family Foundation, a nonprofit health care analysis organization, only 13% of large employers – those with 200 or more employees – offered retiree health benefits to Medicare-age retirees in 2022. Of those, half do so through a Medicare Advantage plan, nearly double the 26% that did so in 2017. Among firms with 5,000 or more workers offering retiree benefits, 60% offered retiree health benefits through a Medicare Advantage plan in 2022, a share that has doubled over the same time period.

Employers choosing this option contract with a Medicare Advantage private insurer that provides all Medicare-covered benefits in addition to supplemental benefits rather than providing supplemental coverage that wraps around traditional Medicare, said KFF. The federal government pays the employer or private insurer acting on behalf of an employer, who then agrees to cover all Medicare-covered benefits along with a package of supplemental benefits for retirees in their group. Employer plans are eligible to receive rebates and bonus payments from Medicare, both of which help cover the costs associated with supplemental benefits for their retirees.

Nearly half (44%) of large employers who offer Medicare Advantage coverage do not allow retirees to choose between Medicare Advantage and non-Medicare Advantage options, the KFF survey found. In addition, employers with 1,000 or more employees that offer Medicare Advantage to retirees largely said they elected for that option due to lower costs, while 14% indicated it provides flexibility for enrollees, 8% said it has better coverage options and 7% said it is administratively simpler.

For retirees, this shift may be beneficial as it allows them to maintain or increase health benefits rather than scale back or terminate coverage during retirement. However, retirees may find their access to doctors and hospitals restricted and subject to utilization management tools including prior authorization that ultimately could limit access to services.

In addition, KFF noted the trend could have implications for federal spending because Medicare spends more than $300 extra per person for enrollees in Medicare Advantage plans than in traditional Medicare. That equates to more than $7 billion in additional spending, according to a 2021 KFF analysis.

In 2022, more than 5 million Medicare beneficiaries received their Medicare-covered benefits and supplemental retiree health benefits through an Employer Group Waiver Plan (EGWP), according to KFF. While group enrollment has accounted for roughly the same share of total Medicare Advantage enrollment since 2010 (18%), the actual number of group enrollees has increased from 1.8 million in 2010 to over 5 million in 2022 as Medicare Advantage enrollment overall has grown.

Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel.