These factors (as well as the high cost of health care) are influencing employers to change their approach to retiree medical benefits, according to our 2015 Survey on Retiree Health Care Strategies:
- The accounting liability on their balance sheets (92%)
- Ongoing administration and expense (90%)
- ERISA obligations such as reporting, disclosure and fiduciary responsibilities (84%)
- The absence of an efficient funding vehicle (54%)
Cost trends for retiree health care
Cost and risk concerns are driving changes in retiree medical programs
Most employers have relied on traditional levers to control costs and risks, such as shifting costs to retirees, capping retiree medical inflation and sharing the excess with retirees, limiting or ending benefits for new hires, and changing retiree eligibility requirements. However, these actions fall short of objectives, but new alternatives are emerging.
- Employer confidence that the individual plan market and public health insurance exchanges will be a viable alternative to employer-sponsored coverage is growing: 8% are very confident in public exchanges for 2015, but confidence rises to 35% by 2017.
- By 2017, more than half of employers (53%) will reassess their current approach to providing pre-Medicare retiree medical and consider insurance exchanges and federal subsidies based on family income where the employer subsidy is nil or modest.
Reform will impact pre-Medicare strategy significantly
- Nearly eight in 10 (78%) are using or considering the services of a private Medicare exchange to assist retirees with individual coverage.
- Insurance products are emerging to create a financial exit or a de-risking of the balance sheet. The liability for retiree medical benefits is transferred to a highly rated insurance company through the purchase of a group annuity that gives retirees tax-free funding for medical benefits for life.