The fast-fading days of retiree health coverage

The landmark changes brought to health care by the Patient Protection and Affordable Care Act, and the constant revisions of the law, have left employers off balance when it comes to cost-containment measures, Kaiser said. But there are other factors at play that further complicate planning.

For instance, Kaiser says, a consistent push to boost the Medicare eligibility age to 67 could result in companies having to cover their older workers for another two years. That can add up for those with large and experienced workforces.

“In an earlier study, Kaiser Family Foundation and Actuarial Research Corporation modeled the effects of raising the Medicare eligibility in a single year (2014), finding that employer retiree plan costs were estimated to increase by $4.5 billion in 2014 if the Medicare eligibility age is raised to 67. In addition, public and private employers offering retiree health benefits would be required to account for the higher costs in their financial statements as soon as the change is enacted,” Kaiser said in its report.

Options identified by Kaiser for reducing the cost of pre-65 retiree health coverage include “strategies to avoid or minimize the impact of the excise tax (a.k.a. the Cadillac tax) on high-cost plans included in the ACA. Although the tax applies to plans for active employees, as well as pre-65 and Medicare-eligible retirees, there is a focus on pre-65 coverage because of its relatively higher cost. And even though the tax takes effect under the PPACA in 2018, employers must begin to account for any material impact the tax may have on their retiree health programs in today’s financial statements.”

Kaiser also said shifting pre-65 retirees to private and public exchanges, moving to a defined contribution plan, and changing plan design to shift costs to employees are all receiving more attention.

Also, employers are increasingly choosing to trim the cost of drug programs away from plans that provide coverage to Medicare-eligible retirees.

Kaiser concludes that company-sponsored health coverage for retirees will inevitably recede from the benefits landscape.

“Over the next few decades, these trends suggest that employer-sponsored supplemental coverage is likely to be structured differently and play a smaller macro role in retirement security than it has in the past and than it does today.  Relatively fewer workers will have such coverage available in the future, to be sure.”

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