By Mark Miller
CHICAGO, Aug 6 (Reuters) - Chalk it up as an unintended consequence of Obamacare: a growing number of U.S. employers are aiming to cut their healthcare costs by shifting retirees into the law’s new public insurance exchanges, which launch this October.
Detroit, which filed for bankruptcy, hopes to push retirees who are too young for Medicare onto the new public insurance exchanges as a way of shedding healthcare liabilities. Chicago has proposed a plan to migrate most of its 30,000 under-65 retirees to the state exchanges by 2017. And, in the private sector, more than 60 percent of employers are reassessing their retiree health coverage as a result of the Affordable Care Act (ACA), according to a study to be released this week by Aon Hewitt, the benefits consulting firm.
The ACA’s exchanges offer employers a way to cap or reduce their exposure to rising retiree health costs, most often without actually reducing the benefits provided.
“Companies are looking to save money, but not materially change the benefits retirees receive,” says John Grosso, who leads a task force on retiree health care at Aon Hewitt. “These changes aren’t takeaways - employers are using the exchanges to deliver a promised benefit, but deliver it with less cost.”
Only 7 percent of private sector employers offered health benefits to early retirees in 2010, and 6 percent offered it to Medicare-eligible retirees, according to the federal Agency for Healthcare Research and Quality (AHRQ). It’s much more common among large companies: at businesses with 1,000 or more workers, 32 percent offered health coverage to Medicare-eligible retirees in 2011, and 38 percent offered it to early retirees.
Retiree health coverage is much more common in the public sector, but it has been declining sharply in recent years. While strapped states and cities often are bound by law to provide pension benefits, retiree health benefits are not - although they may be protected by collective bargaining agreements. The percentage of state government units offering retiree health insurance to Medicare-eligible workers was 63 percent in 2010, down from 89 percent in 2003, according to AHRQ.
Most retirees over 65 are enrolled in Medicare Part A (hospitalization) and Part B (outpatient services). Employers sometimes provide supplemental coverage for prescription drugs and to plug some of Medicare’s gaps, such as deductibles and coinsurance for long hospital stays and outpatient services.
Some employers are replacing in-house retiree drug coverage with group Part D plans. But the Aon Hewitt survey found that 40 percent of employers that already have decided to make changes in retiree coverage will move Medicare-eligible retirees to the individual Part D marketplace, often backed by a direct tax-free subsidy to offset cost.
The ACA has made the Part D marketplace more attractive than many employer plans, by gradually closing the gap in drug coverage - known as the donut hole - and incorporating a 50 percent discount on brand-name drugs. “The improvements are a big deal, and they’ve made the individual market more attractive than ever before for employers,” Grosso says.
Meanwhile, for pre-Medicare retirees, the ACA’s exchanges offer tax credits to offset premiums costs for families with incomes between 100 percent and 400 percent of the federally defined poverty guideline. That works out to an annual income between $11,490 and $45,960 for an individual, and between $23,550 and $94,3200 for a family of four.
Shopping the Medicare markets can be challenging, and navigating the public exchanges also will be complex. But employers usually aren’t leaving retirees to fend for themselves, Grosso says. Instead, they are adding call centers manned by licensed advisers who can assist retirees with evaluating and enrolling in plans being offered where they live.
“Employers aren’t comfortable just putting retirees out there figure out how to evaluate 30 different plans in their zip code,” Grosso says.
For Medicare-eligible retirees who lose employer coverage, the first decision is whether to stick with traditional fee-for-service Medicare or enroll in an all-in-one Medicare Advantage plan, says Paula Muschler, manager of the Allsup Medicare Advisor, a Medicare plan selection service.
Most Medicare Advantage plans are managed care health maintenance organizations (HMOS) or preferred provider organizations (PPOs). Enrollees pay their regular monthly Part B premium ($104.90 this year), but often no additional premium for drug coverage, which averages $30 per month this year. They also don’t pay for Medigap supplemental plans.
“Medicare Advantage plans can be a great option, because they’re very similar to group plans that retirees had while they were working,” Muschler says.
If you don’t opt for Advantage, you’ll need to sign up for a standalone prescription drug plan, and you’ll want to consider a Medigap plan, too.
Typically, it’s best to buy a Medigap policy during your open enrollment period, which runs for six months and starts on the first day of the month in which you are age 65 and enrolled in Medicare Part B. Insurance companies are required under the law to sell you a policy during open enrollment. They can’t exclude pre-existing conditions, or charge a higher premium due to any past health problems.
Muschler notes that a loss of employer-provided supplemental coverage triggers a 63-day open enrollment for Medigap, no matter your age, from the time you lost employer-provided coverage.