Employers confident about exchanges despite rocky start

More than half of U.S. employers-56%-are confident that public exchanges will be a viable option for their pre-65 retirees (those not eligible for Medicare), according to a recent survey from Willis Towers Watson.

The survey also found that in the face of continued pre-65 retiree healthcare cost increases, 72% of employers plan moderate to significant changes in pre-65 retiree health benefits over the next four years.

Barkett

“This finding is significant because it reflects that employers see relative stability of public exchanges after a rocky start,” says John Barkett, senior director of policy affairs at Willis Towers Watson. “It is also significant because it points to a solution to a longstanding problem employers have had: how to provide more affordable health insurance to pre-65 retirees.”

Employers are already leveraging individual plans for their Medicare-eligible retirees, according to Barkett.

“Since the advent of Medicare Part D, employers have moved their Medicare-eligible retirees off group plans to find supplemental coverage in the individual market,” he says. “Private Medicare exchanges make the process of evaluating and purchasing individual plans easy for retirees. This alternative keeps costs down and retiree satisfaction up. Many employers have already taken advantage of the option or are planning to.” 

Now a similar movement is afoot for pre-65 retirees, Barkett says.

“Thanks to one provision of the ACA, guaranteed issue, employers know in advance that all of their retirees will be able to enroll in individual coverage if they discontinue their group plan,” he says. “Because of guaranteed issue, moving younger retirees to the individual market, supported by, in this situation, public exchanges, creates a solution for them that looks similar to the solution for Medicare retirees.”

Employers responding to the survey expect cost increases for pre-65 retiree healthcare of 4.1% in 2016 after plan changes or 5.7% without plan changes. This compares with expected 2016 cost increases for Medicare-eligible retiree health care of 2% after plan changes or 3.3% before plan changes. These expected cost increases factor in that some employers fund retiree benefits through fixed contributions made into health reimbursement arrangements (HRAs).

“Executives . . . now have a more economical alternative to their current option, which is to cover pre-65s under the same expensive group plans they offer active employees,” Barkett says. “That option is to enable these younger retirees to purchase individual plans through public exchanges-or direct from carriers. So, the fact that employer confidence in public exchanges is as high as it is could prompt some employers to more seriously consider the option.”

Next: Three things to remember

Based on the survey, Barkett offers these three takeaways:

#1. If you offer medical coverage to pre-65 retirees and are seeking an alternative, “you should know that a growing number of employers believe that individual market plans purchased on public exchanges are becoming more viable,” he says.

#2. The pre-65 individual market solution looks a lot like the Medicare-eligible individual market solution. “A key difference is that Medicare exchanges are private and pre-65 exchanges are public,” Barkett says.

#3. President Obama and other Democratic leaders are calling for a Medicare-style public option for people under the age of 65. “However, such an option is generally opposed by the Republican leadership, and is therefore by no means a certainty in the near future. In the meantime, this could be your best alternative,” he says.

Willis Towers Watson provides both a private Medicare exchange solution and a pre-65 retiree offering.