Employers weigh shifting retirees to Medicare

Aon says more than a quarter of companies would consider a retiree health care settlement strategy for all or a portion of their retiree group, “if the market environment could support it on a cost-effective basis.”

Companies appear to favor “a retiree benefit ‘buy-out’ that enables organizations to fully or partially eliminate their ongoing retiree medical commitment.”

Examples include:

• Purchasing life annuities to provide a fixed-income stream in lieu of ongoing medical coverage;  
• Establishing and funding a VEBA trust to support continued retiree benefits;  
• Making direct cash lump-sum payments to retirees.

“Of those companies that have already decided to make strategy changes for their post-65 retirees, more than 40 percent have moved forward with one that will direct retirees to the individual market for coverage, oftentimes accompanied by a defined contribution subsidy. Of those companies expecting to make changes to their post-65 retiree strategies in the future, more than half indicate strong interest in this approach,” Aon reports. 

“With the PPACA legal and political landscape generally clarified, employers are looking to control cost, manage risk and source coverage through the most efficient means possible,” said Maureen Scholl, CEO of Health Care Exchanges for Aon Hewitt.

“Individual market-based retiree health care sourcing strategies can create significant savings opportunities for all stakeholders. We expect to see many employers apply these strategies where possible and supplement them with modified group-based programs for those retiree populations where individual strategies do not make sense.”

See also:

• Medicare plays important role in retirement decision
• How advisors can help solve the health care cost crisis
• Trade-offs in raising Medicare eligibility age