Health Reform Provisions Prompt Retiree Medical Plan Sponsors To Retool, Aon Hewitt Reports

from Spencer’s Benefits Reports: The Patient Protection and Affordable Care Act (ACA) is affecting long-term retiree medical benefits strategies, even as fewer workers have access to these benefits, a recent survey from Aon Hewitt determined. The Aon Hewitt data shows the continued trend toward reducing or eliminating retiree health care coverage, which generally began with the introduction of retiree welfare accounting standards in the early 1990s for private employers, the consultant noted. The survey, 2012 Retiree Health Care Survey: The Evolution of Retiree Health Care Strategy Post-Health Care Reform, collected responses from 446 private and public plan sponsors representing 10.4 million employees and 5.8 million retirees. Approximately 89 percent of respondents are private entities and 11 percent are public entities.

Aon Hewitt found that nearly two-fifths of employers did not offer any retiree medical benefits to new hires and 29 percent offered access only (no subsidies). Employees retiring in 2012 had subsidized, but cost-capped coverage at 43 percent of sponsor companies; subsidized and uncapped cost coverage at 25 percent, and access only (no subsidy) at 21 percent of firms. For current retirees ages pre-65 and 65 and older, 46 percent and 43 percent of sponsors, respectively, offered subsidized, cost-capped coverage; and 35 percent and 34 percent offered subsidized, cost uncapped coverage.

The ACA provisions include some major coverage requirements for health care plans, including group health plans. However, the ACA provisions specifically exempt “any group health plan (and group health insurance coverage offered in connection with a group health plan) for any plan year if, on the first day of such plan year, such plan has less than two participants who are current employees.” About half of plan sponsors surveyed have stand-alone retiree health care plans and can avoid the new group insurance market reforms for their retiree populations.

In response to the current and pending ACA requirements, 27 percent of the retiree medical plan sponsors are in the process of evaluating potential strategy shifts, 2 percent will review potential strategy changes in the next two to three years, and 14 percent have already made some strategy shifts.

Other factors prompting retiree health care benefit plan sponsors to reassess their strategies for retirees age 65 and older include that, beginning 2013, the tax-favored status of the retiree drug subsidy (RDS) will be eliminated and the Medicare Part D prescription drug plan coverage is improving over time with the doughnut whole phase out by the year 2020 and discounts for brand name drugs. Consequently, fewer plan sponsors plan to file for the RDS in 2013 and beyond (40 percent), compared with 66 percent in 2010 and 60 percent in 2012. Among sponsors who have decided on changes, 62 percent plan to move to the Employer Group Waiver Plan (EGWP or group-based Part D) and many (39 percent) plan to move to an EGWP with a wrap-around, Aon Hewitt found. Only 10 percent considered eliminating coverage entirely.

Approximately one-third each of plan sponsors planning strategy changes said they would pursue a defined contribution approach and reliance on state health insurance exchanges, Aon Hewitt found. Nearly two-thirds (63 percent) will “facilitate” an individual marketing strategy for age 65 and older retirees, a Medicare supplement private exchange allowing retiree plan choice and a more limited sponsor subsidy. Only 11 percent would eliminate coverage outright. Only about one-third (32 percent) offer Medicare Advantage managed care plans.

Of plan sponsors making changes, 36 percent are announcing the changes in 2012 and 42 percent are announcing them in 2013 with the great majority (78 percent) implementing the changes in 2013.

Also, beginning in 2018, the ACA would impose a 40 percent tax on health insurance plans that cost more than a specified level. The most common retiree medical plan sponsor strategy for retirees younger than age 65 is to lower the cost of the plan by boosting the deductible, copayments, and coinsurance, as well a turning to a defined contribution plan design with coverage through a state health insurance exchange.

With regard to the Early Retirement Reimbursement Program, 73 percent of retiree medical plan sponsors applied for the program and 92 percent filed claims for reimbursement. Half of the ERRP applicants said they will at least share some of the reimbursement with plan participants with 64 percent reducing participants’ premium contribution, while 29 percent said they would retain the entire reimbursement.

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