Employer Sponsored Health Coverage in the Age of Obamacare

August 28th, 2013
in econ_news, syndication

Econintersect:  Global professional services company Towers Watson (NASDAQ:TW) reports that a survey of 420 mid-to-large size companies reveals that most larger companies are committed to continuing medical benefits for at least the next two years.  According HIX (Health Insurance Exchange, published by Employee Benefits Advisor), concerns that the Affordable Care Act (ACA, aka Obamacare) will drive some employers to drop health insurance may be overblown.

Follow up:

The survey did find that as many as 40% of the companies may modify their coverages to avoid the excise tax impose by ACA on so-called "Cadillac Plans". These are plans that provide insurance premiums as a benfit exceeding $10,200 for individuals and $27,500 for families.

Ron Fontanetta, a Towers Watson senior health care consultant was quoted by HIX:

Employers are balancing many competing factors as they revisit their financial commitment to health benefits and their ability to maintain a sustainable plan in the face of annual cost increases and the excise tax. They see health care benefits as an important part of their total rewards mix. And as they weigh new options, they will be looking to keep their plans affordable and viable for the long term.”

The story is different for retirees. Here is what HIX had to say in that regard:

In 2014, 25 percent of the employers surveyed are likely to discontinue coverage of retirees over the age of 65, expecting that various Medicare options, as made available by the new, ACA-sponsored public health insurance exchanges, will pick up the slack. By 2015, according to the survey, that percentage is likely to swell to 44 percent.

The number of employers who think public exchanges might be viable for active employees is much lower (30%) But HIX says that more than half of employers are considering the use of private exchanges to reduce administrative overhead and reduce cost increases.

One major corporation has already taken action regarding retiree health coverage. Last week IBM mailed notification that it was terminating its group healthcare coverage for its U.S. retirees.  Starting starting 01 January 2014, the company's retirees will purchase individual policies through Extend Health, a private insurance exchange, which is a subsidiary of Towers Watson.  In January 2013 Towers Watson announced the launch of a public exchange program, OneExchange. The IBM announcement specifically said the new retiree coverage would be through Extend Health, the private exchange, which deals with Medicare supplement insurance plans.

From an Extend Health press release in January:

Extend Health operates the nation's largest private Medicare exchange, which has more than 250 employers, including 45 Fortune 500 companies. Extend Health has helped more than 500,000 retirees select from thousands of private Medicare plans from more than 80 national and regional insurance companies. Licensed benefit advisors, using state-of-the art decision support tools and service center routing systems, have logged more than three million phone calls helping retirees choose coverage that fits their needs.

Econintersect has obtained a copy of the IBM retiree package mailed last week. In the accompanying letter Kyu Rhee, IBM Chief Health Director, said:

"The Extend Health Medicare Exchange will offer you many benefits ... that are not available in group plan options like those IBM offers today."


Another reason IBM is making a Medicare Exchange available to you is because cost increases under our current retiree group health care plan options are no longer sustainable for you. In fact, we project that health care costs under IBM's current plan options for Medicare-eligible retirees will nearly triple by 2020, significantly impacting your premiums and out-of pocket costs.

The reason that IBM specifies that the increased costs will fall on retirees is that about 10 years ago IBM put an annual cap on company contributions each year to retiree health costs.

IBM will contribute annually to a new Health Reimbursement Arrangement (HRA) for those retirees who are currently eligible for subsidized IBM group coverage. The HRA is a new, tax-free account that you can use each year to pay premiums and eligible out-of-pocket health care costs, including deductibles, co-pays and coinsurance.

The mention of "eligible" occurs because IBM has reduced the company's contributions to retiree health care costs in several steps since 1991. This has produced a hierachy of benefits, higher for older retirees and reducing in steps as retirement dates have become more recent.

If you receive a premium subsidy from IBM today, you will receive an annual contribution to an HRA from IBM, so long as you enroll in a medical plan through Extend Health. The aggregate amount of IBM's contribution to benefits will be consistent with previous years, but will be in the form of an HRA contribution instead of a premium subsidy.

In accompanying materials IBM added the following:

Nearly all of IBM's Medicare-eligible retirees and dependents will be able to obtain quality medical and prescription drug benefits through the Extended Health Medicare Exchange that are equal to or better than what they have today, at the same or lower cost.

That is because the Medicare-eligible population is very attractive to insurance companies. The pool of Medicare-eligible individuals in the U.S. is growing at a rate of 10,000 per day and is expected to approach 60 million by 2020. The number of insurers and plans has increased significantly in recent years, and competition has led to better pricing for retirees.

See also "It Rained Today - Blame it on Obamacare" in GEI Analysis.


  • Documents mailed week of 19 August 2013 to IBM retirees.

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