Aon Hewitt’s survey shows many companies are also considering changing their pre-Medicare retireestrategies to leverage the individual market in the future. Of those employers contemplating changes to their pre-65 retiree coverage, 34 percent favor a defined contribution strategy with individual market/publicexchange-based benefit sourcing in the future and 30 percent favor eliminating pre-65 retiree coverage andsubsidies altogether. Thirty-three percent do not anticipate a future change in their strategy.
Medicare Part D Strategies
Aon Hewitt’s survey shows that 53 percent of employers have altered or plan to alter their Medicare Part D or broader post-65 retiree benefit strategies. Thirty-six percent of companies that have made changes since2010 have moved to a group-based Medicare Part D plan (EGWP) and another 21 percent of those stillcontemplating changes anticipate moving to the EGWP in the future. According to Aon Hewitt’s survey, the percentage of employers that filed to collect the federal Medicare PartD Retiree Drug Subsidy (RDS) has dropped from 63 percent in 2010 to 48 percent in 2013. Only 18 percentplan to file for the subsidy longer-term.“The elimination of the tax-favored status of the RDS for 2013, coupled with the PPACA-prescribedimprovements to the Medicare Part D program, created the impetus for employers to take action,” notedMilind Desai, retirement actuary at Aon Hewitt.” While many organizations will continue to rely on group-based sourcing strategies for their retiree populations, they will likely migrate toward ones that are more costeffective.”
Medicare Advantage Strategies
Aon Hewitt’s survey shows just 34 percent of employers currently offer local/regional or national group-basedMedicare Advantage plans to any of their post-65 retirees, and just 6 percent of employers say they consider Medicare Advantage to be a viable group-based strategy going forward.However, 38 percent of employers say they would consider replacing their current group-based Medicaremedical indemnity supplement strategies with a national Medicare Advantage PPO if there would be nochange in retiree benefits and if it would generate material savings in the near-term.“In the past, many employers leveraged Medicare Advantage plan strategies because the savings could besignificant,” said John Grosso, health care actuary and leader of Aon Hewitt’s Retiree Health Care task force.“Over time, these plans experienced significant challenges as federal funding cuts took place, which led toincreases in plan premiums, reductions in benefits and plans exiting certain locations. While PPACAintroduced a number of changes to the Medicare Advantage program, employers generally want to seeconsistent performance over time and a stable federal funding commitment before investing in these group-based strategies for the long-term.”
Settlement strategies contemplate a retiree benefit “buy-out” that enable organizations to fully or partiallyeliminate their ongoing retiree medical commitment. Examples of settlement strategies that employers haveconsidered include purchasing life annuities to provide a fixed income stream in lieu of ongoing medicalcoverage, establishing and funding a VEBA trust to support continued retiree benefits, or making direct cashlump-sum payments to retirees. According to Aon Hewitt’s survey, more than a quarter of companies said they would consider a retiree healthcare settlement strategy for all or a portion of their retiree group if the market environment could support it ona cost-effective basis.“We saw tremendous pension settlement activity during 2012, and that trend is continuing in 2013.Companies looking to shrink benefit liabilities on their balance sheet may explore the viability of settling their retiree health care obligations as well,” said Desai. “At present, there are a number of tax, legal and markethurdles that limit the feasibility of settling retiree medical program commitments in a cost-effective manner,but this may change in the future.”