Before taking budget axes to retiree medical benefits, employers should consider alternative offerings and the potential impact of such benefit cuts on workforce planning initiatives.
Given inflationary pressures that all financial executives are facing, it’s no surprise that rising costs continue to be the number one concern for both employers and the participants around retiree healthcare plans, Trevis Parson, chief actuary for Willis Towers Watson (WTW), said in an interview.
But employers should review the increasingly attractive range of alternative solutions to traditional employer-sponsored group plans, some stemming from the Inflation Reduction Act (IRA) before jettisoning such offerings wholesale. Parson asserts companies there are better options now that are worth considering.
“It’s not just a retiree issue, it’s just as much an active workforce planning issue,” Parson said. Employers might save some money in the short-term by cutting the benefits, but this could have consequences when it comes to hiring and retaining the right workers for the positions.
For example, if employees don’t have an affordable healthcare plan established for their retirement they might need to hang on working for the company longer than might be desirable, Parson said. The retiree healthcare plan “might be your problem because it could be impacting your ability to hire and retain and otherwise influence an appropriate retirement path,” Parson said.
There was some good news for both employers and their retired former employees contained in the IRA passed earlier this year, he said.
The IRA makes Affordable Care Act (ACA) coverage more affordable for retirees not yet eligible for Medicare by extending premium-tax-credits through 2025, Parson said. All retirees are eligible for these credits which limit the cost of ACA coverage to no more than 8.5% of income. For Medicare-eligible retirees, the IRA improves the Medicare Part D benefit by eliminating the catastrophic 5% coinsurance in 2024 and establishing a new maximum out-of-pocket cost at $2,000 per year, he said.
“Basically, by picking up a piece of the health care bill, we think [the IRA] can take pressure off of employers who might otherwise choose to offer nothing at all,” Parson wrote in an email.Employers can help retirees by providing some financial support and by helping retirees access these benefits by partnering with providers who advise individuals on market options, he said.
The cost of traditional retiree health coverage, split between an employer and the retiree, is about $1,000 monthly for those not yet eligible for Medicare, he said. For those Medicare eligible, the cost is about $500 per month, he said.
A WTW survey of 122 U.S. employers conducted in July and August found that over one in five employers (22%) have either stopped offering a traditional group medical plan to early retirees or are considering a replacement. Among the companies that terminated a group plan, 75% are replacing it with access to and financial support for individual insurance through a private marketplace, the study found.