When Rockwell International, a Milwaukee-based industrial automation products and software business, decided to move its retirees from a company health plan to a private insurance exchange in 2015, the first information session offered a clue as to how popular the idea would be. So many people signed up to learn about the new coverage that Rockwell had to move the meeting to a ballroom twice as large as planned.
Like Rockwell, a stream of companies are finding that moving Medicare-eligible retirees (ages 65 and older) out of their group health insurance plans and into private individual exchanges is a win-win for them and their former employees. Retirees often get more choices for less money, while HR departments are relieved of what can be a heavy administrative burden.
“The employer is taking itself out of the line of fire for anything to do with administration of the medical and pharmaceutical plans,” says Bruce Richards, individual and retiree exchange leader at Mercer Health and Benefits LLC in Richmond, Va.
There’s an added benefit: the sweet sound of silence. Sometimes former employees with time on their hands can talk the ears off HR staff about grandkids and the weather, Richards says.
But John Barkett, senior director of health policy affairs at Willis Towers Watson Exchange Solutions in Washington, D.C., says once retirees are shifted off of company insurance, HR doesn’t hear a peep from most of them, allowing staff to “get back to the huge list of things our benefits team needs to accomplish.”
To be sure, private exchanges aren’t a fit with every age group—pre-Medicare retirees face much larger premiums than those who are Medicare-eligible, for instance. But, encouraged by the experiences of early adopters, many companies are exploring or embracing the option for older retirees.
About 31 percent of companies polled had switched their 65-and-older retirees into exchanges, according to the results of the Aon Hewitt 2015 Retiree Health Care Survey. Of those that haven’t adopted such a strategy, 61 percent are at least considering it.
This employer interest in private exchanges is increasing quickly. In 2014, an estimated 2.5 million people were insured through private marketplaces, but that number could go up to 40 million by 2018, according to the report Examining Private Exchanges in the Employer-Sponsored Insurance Market from the nonprofit health care think tank Kaiser Family Foundation.
“The trend is up. Ten years ago, we didn’t have private exchanges for retirees,” says Paul Fronstin, director of the health research program at the Employee Benefit Research Institute (EBRI).
While HR departments and companies can save time and money by making this shift, ensuring a smooth transition is key to success. After all, you don’t want to end up with a group of alienated or confused former employees.
The process itself is pretty straightforward. Companies that choose to use an exchange drop the group plan they had for retirees and sign a contract with a private marketplace. Several exchanges exist, including those run by such major consulting companies as Mercer (Mercer Marketplace), Aon Hewitt (Aon Active Health Exchange) and Willis Towers Watson (OneExchange). The employer gives qualifying former workers (and sometimes their spouses) a subsidy to buy individual insurance through the exchange, which acts as a customer portal to the marketplace and helps the beneficiary sort through various insurance options with customer representatives and online tools.
Subsidies vary by employer but generally range from about $65 a month to $200 or $300, Richards says. What retirees can buy with those amounts varies with age and geography, but the monthly cost to individuals can be as low as $20 for drugs and $60 for medical coverage.
UPS switched to Aon’s exchange for its 10,000 65-and-older retirees (and 4,000 spouses) in 2012. (The company eliminated retiree health benefits for employees hired after 2006.)
Medicare-Eligible Market Trending Upward
Several factors have changed the equation to make private exchanges increasingly popular for companies when providing for older, Medicare-eligible enrollees.
- Expanded coverage. More-comprehensive prescription drug benefits are now available through Medicare Part D plans, which can be purchased through the exchanges. So now prescription and medical coverage can be pieced together in a way that is more equivalent to what employers offered in group insurance.
- Increased certainty. With health care costs rising, private exchanges provide the stability of a predictable contribution determined by the company.
- More options. As the exchanges have grown, competition has resulted in competitive prices and broad choice for many beneficiaries. Mercer’s platform, for instance, has 50 insurers with about 14 plans each.
- Larger risk pools. Exchanges are part of the larger individual health policy market, so risks are spread across the population in a geographic area, not just one company’s retirees, which can make coverage cheaper. After many companies cut retiree benefits for new hires, their pools of covered beneficiaries grew older and sicker on average, driving up the premiums on their group insurance.
“We wanted to provide them a means by which they could get more bang for the buck on the dollars UPS was investing in their health care,” says Edward Long, corporate health care director at the Atlanta-based parcel service.
The old group plan paid 80 percent of many medical services but only applied when Medicare’s coverage was lower than that. Many retirees weren’t getting much benefit from it, according to Long. Now they get a subsidy deposited into a health retirement account based on their years of service. They can use that to buy a Medicare supplemental or Advantage Plan (which offers HMO-type insurance) and prescription drug coverage.
The exchange’s concierge service helps retirees shop for a plan, troubleshoot problems such as unpaid bills and handle the paperwork of enrollment.
“The feedback has been very positive for the majority,” Long says. “They’re pleased with the assistance they get in shopping through the marketplace,” and some spouses like being able to purchase separate plans based on differing health care needs.
Of the 5,000 retirees Rockwell moved to a private exchange, only about 20 voiced misgivings, such as complaints that the company was no longer the plan sponsor or concerns about special medical needs, according to Harry Malone, vice president of compensation and benefits at Rockwell. The only significant hiccup, he says, is that Rockwell’s subsidy is applied only to the first couple months of premiums, so when that runs out, some people are unhappy about the higher costs they face.
Some companies use the move to an exchange as a way to cut costs. Richards says the switch can save companies about 10 percent to 20 percent on their older-retiree coverage.
“Generally, as part of the transition, every employer has the opportunity to reduce their costs,” Richards says, though he notes that “Not all of them take that opportunity.”
Rockwell saved $300,000 to $400,000 in administrative costs when its retiree beneficiaries transitioned to a private marketplace. “It freed up a few hundred hours of communication and execution time,” according to Malone.
The company expects even more savings as it phases out the retiree subsidies over time. Malone says that since the exchange policies are so inexpensive, people will have adequate coverage without a subsidy from Rockwell. That will save the manufacturing company $1 million a year.
Moving retirees to an exchange “wasn’t to try to find some windfall,” Long says. For those individuals who pick plans that cost less than the subsidy, the leftover money can be used for out-of-pocket medical expenses.
While it’s becoming increasingly popular to move the Medicare-eligible population to private exchanges, the market is still evolving for workers who retired at a younger age. Only 6 percent of companies surveyed by Aon Hewitt had moved their pre-Medicare retirees into exchanges, and 9 percent offer individuals in this group a choice between an exchange and a group plan. Still, more than a third of companies—including Rockwell and UPS—are weighing the option for the under-65 beneficiaries, according to the survey.
Because this coverage isn’t just a supplement to Medicare, it’s much more expensive than it is for older beneficiaries. These plans cost $200 to $1,000 per month for an individual policy. And employer subsidies generally range from about $100 to $600 a month.
Richards advises HR leaders to be cautious about moving to private insurance for retirees under age 65. “The market is not stable or mature at this time [and], until some big jumbo employer jumps in, it will be a slow migration,” he explains.
Slow Migration for Younger Retirees
The individual exchange market for retirees under age 65 who don’t yet qualify for Medicare is volatile, making companies wary of transitioning that population off of group health insurance. In all likelihood, it will be a few years until we know whether the tactic catches on for this group. Among the problems:
- Uncertainty. The market is so new that insurers are still trying to figure out how to price their policies and how healthy the pool of beneficiaries will be. That has meant big premium increases for some insurers, such as UnitedHealthcare, which is considering leaving the individual market entirely. That can result in turmoil for retirees who find their coverage won’t be available the next year.
- Selection. Some marketplaces offer little choice. Only one insurer offers policies in all of West Virginia, for instance, and some Florida counties have only one or two insurers, advises Bruce Richards, individual and retiree exchange leader at Mercer Health and Benefits LLC.
- Political opposition. The Affordable Care Act (ACA) is political anathema to some, and there are retirees who don’t want to participate in an exchange of any kind—public or private. In addition, the bitter politics surrounding the ACA have left some issues still up for debate. For instance, individuals are required to have insurance, but whether increasing fines for those who don’t will drive more relatively healthy people into the market to spread risk remains to be seen, says John Grosso of Aon Hewitt.
“We expect a lot more caution on the pre-65 side as the market evolves, politics evolves and the health of the [pool of] enrollees evolves,” says John Grosso, an actuary at Aon Hewitt and head of the retiree health care group. “You need the younger, healthier people to show up if it’s going to become more insurance-market-stable.”
Managing the transition can be tricky. “Some retirees are going to love it, and some are going to hate it,” says Fronstin of EBRI. “One person might say, ‘I’m 60 years old, and I don’t like it.’ But another might say, ‘What took you so long? I shop for everything else online—why not health insurance?’ ”
Some employees expected their companies to take care of their health insurance for life, so the sudden array of choices can be overwhelming, says Willis Towers Watson’s Barkett. “We work with the employer to communicate the change, to help retirees get over the initial shock,” he says.
Barkett’s company held 2,000 meetings with retirees last year and conducts seminars, webinars and teleconferences. Like other exchange providers, Willis Towers Watson offers people a phone appointment to go over their health needs, prescriptions, doctor preferences, financial options and other factors to winnow the choices.
Malone at Rockwell, which uses the Willis Towers Watson exchange, says retirees liked having a scheduled phone call with insurance facilitators and the option for a second call if needed to weigh the options. “They talked to a live person, which they all loved,” he says.
Although handing off coverage to the exchange reduces administrative duties, the transition still requires HR planning. At UPS, for instance, Long says the company launched a “robust campaign of mailings” to retirees and had a road show with Aon representatives that toured the country to places where many former workers resided.
Despite HR’s best communication efforts, however, more communication could always be useful. There’s a significant gap between what retirees recall being told about their benefits before they retired and what employers believe they communicated, according to recent survey results from Towers Watson. Nineteen percent of retired employees said they were offered financial planning resources and decision-support tools to help them understand the role of medical coverage in their retirement strategy, while 41 percent of employers said they provided these things.
That disconnect underscores the need for HR to better educate people about their retiree medical costs and benefits.
To make the switch to a private exchange easier, HR departments can take these steps:
Survey the landscape. Start with a feasibility study to look at the costs for the company and for retirees of individual vs. group coverage, and how different groups of people will fare based on their health needs. The study can also spell out what level of subsidy would be equivalent to the same coverage people already have.
Educate retirees. Communication eases the transition. In addition to sharing important information companywide, leaders of retiree groups at Rockwell conducted a mock enrollment so people would be familiar with the process and could talk to others about it. “It’s one thing to give people choice,” Malone says. “It’s another to have them make that choice without information. We wanted to give them a lot of help.”
Ensure adequate choices. Check to make sure there are plenty of available plans where your former workers live, especially for early retirees. Mercer, for instance, can generate a heat map to show where employees live compared to what coverage is available. “Do your homework before you [switch coverage] because you should never be surprised by the choices,” Richards says.
Provide large networks. Make sure the insurers for pre-Medicare plans offer broad-enough networks so retirees will be able to use the doctors and hospitals they prefer without extra costs. The same goes for looking over the available drug formularies.
Make sure there’s support. The exchange vendor you pick should have enough call center employees to handle the load of calls during open enrollment. “You have to make sure they are staffed adequately,” Long of UPS says. When a 72-year-old retiree and his wife call in to go over their benefits, “you don’t want to rush them off the call.”
Rockwell used a consultant to help it evaluate which exchange was best for the company and its former employees.
Provide ongoing guidance. Don’t forget the need for help after the initial enrollment. Retirees’ health needs change and so do the plans offered each year, along with the networks and drugs they cover. Having people who can offer advice available, such as through the exchange’s customer service team, is incredibly valuable, says Tricia Neuman, senior vice president at Kaiser Family Foundation. “People like the idea of having many options, but they also found them daunting,” says Neuman, who conducts focus groups with seniors to talk about health care. “The more options that are available, the more difficult it is to make a good choice.”
Avoid union problems. Double-check contracts and what was originally promised to retiring workers. That can be complicated for companies that have bought organizations over the years and need to check whether any of the previous promises don’t measure up to what is offered with the exchange.
Malone at Rockwell didn’t face that problem and hasn’t heard many complaints from retirees. “There’s not been a lot of buyer’s remorse,” he says.
Tamara Lytle is a freelance writer based in the Washington, D.C., area.
SHRM article: Retiree Health Care Alternatives Gaining Steam
Report: Examining Private Exchanges in the Employer-Sponsored Insurance Market (Kaiser Family Foundation)
Article: Companies Look to Transition Retirees to Health Exchanges (Aon)
Article: Expanding Options for Employers in Next-Generation Private Exchanges (Willis Towers Watson)