2013
Consider this; the Affordable Care Act does not require employers to offer health insurance to spouses or to retirees. So, if you are a large employer trying to deal with health care costs what would you do?
The obvious, but short-term impractical, approach is simply to eliminate such coverage (for retirees this has already happened in some cases), but the more likely approach is simply to raise the premium sharing to the point where an exchange plan (and possible tax subsidy) becomes a better alternative.
Such a strategy is not so easy for employees because of the penalties and requirements of Obamacare.
Enter private exchanges.
Private exchanges can be offered to all employees and to all retirees, even those on Medicare although they are not always called exchanges, but follow the same model. IBM recently announced to its Medicare-eligible retirees that it is no longer operating their plans and they must seek coverage through Extend Health, a Towers-Watson organization.
Private exchanges are growing (slowly) among larger employers looking to limit their involvement in health benefits for active employees while setting a fixed, predictable financial commitment for the employer.
The move to an exchange is often couched in glowing terms such as:
In a statement, provided through Buck, the company, which is based in Columbus, Ohio, said the setup offered “an opportunity to more cost-effectively deliver a competitive employer-sponsored benefit program while providing expanded plan options.” Through Buck, the firm declined to comment on details of its setup. WSJ article 9-4-13
Corporate communicators are good at creating more from less. Here’s another example announcing what amounts to cuts in benefits and increases in out-of-pocket costs for workers.
We are excited about the opportunity to look at innovative approaches to provide quality and affordable medical plan options.
In its letter to retirees IBM said
I know you want more choice in medical options and coverage, access to doctors and the drugs you need, and you want to manage costs. That is why as part of our commitment to making available quality, cost-effective health care benefits, I’m pleased to announce that IBM has selected Extend Health, the country’s largest private Medicare Exchange, to provide you with new options for medical, prescription drug, dental and vision coverage.
I’m guessing there were no pleas from IBM retirees for more choice and to be cut lose from Company plans. Like other employers IBM’s financial commitment has shifted to a defined contribution approach.
Quality and affordable seem to be the buzzwords of the day. I guess companies were not offering quality and affordable plans before they decided to move workers and retirees to exchanges or raise deductibles, co-payments and premiums.
Consulting firms and insurers have hatched an idea that will radically change the employer’s role in employee health benefits to the detriment of workers. They have taken advantage of the changes and environment brought about by Obamacare and leveraged corporate America’s general desire to exit the health care business. Within a decade the concept of an employer’s health benefits plan will be gone.
For workers and retirees who cannot benefit from federal exchange subsidies, your costs are going up. This means your premiums are increasing as well as your out-of-pocket costs. Even though Obamacare is supposed to make health care “affordable,” the indirect consequences for workers and retirees with employer-based coverage are decidedly negative.
By Jay Hancock, KHN Staff Writer, AUG 28, 2013
Corporate America is taking a hard look at moving retirees and part-time workers into health insurance marketplaces created by the Affordable Care Act, suggests a survey by the National Business Group on Health.
To a lesser extent large companies also expect coverage for their full-time workers employee spouses to shift to the online, state-based marketplaces known as exchanges, according to the annual survey published Wednesday.
via Survey: Big Business May Shift Retirees, Part-Timers To Insurance Exchanges – Kaiser Health News.
More Employers Overhaul Health Benefits – WSJ.com.
FAQ: What Workers Need to Know About Private Employer Exchanges – Corporate Intelligence – WSJ.
Related articles
- Thanks a lot, IBM ! (w6bky.me)
QUINNSCOMMENTARY 
Dick, I moved 5,000 Medicare eligible retires to Medicare advantage options back on January 1, 2008, two group options, or if the retiree preferred, an hra company contribution process where they could choose an individual medicare advantage option. That followed a comparable Medicare PDP change that took effect January 1, 2006.
Simply, those same retires today have better coverage than they had before the changes, at less contribution cost – in nominal dollar terms. I can only hope my prior employer can sustain today’s choice program more than four years so I can also benefit when I age in to Medicare.
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I just received a call from my 93 year old aunt who had just received a letter from her husbands employer telling her they were terminating their involvement and she had to call Extend Health, the same organization used by IBM and Honeywell. Depending on the plan she selected they may put money in an HRA for her. She is confused and scared about giving up the security of the employer coverage.
Employers are cutting lose people at their most vulnerable point even if in many cases it’s actually to their financial advantage … at least until premiums start going up and the HRA contribution doesn’t. We miss considering the value added by employer involvement in health benefits. Employers expect employees and unions to keep their commitments, but it never seems to work the other way around.
Dick
Richard D Quinn
Blog http://www.quinnscommentary.com Twitter @quinnscomments
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What commitment is that? Is that the commitment an employee makes to provide two weeks notice before they leave to join a competitor, or to start their own competing firm. Perhaps that’s the commitment the employee claims who called in sick, and was caught using a “mental health day”. Or, maybe the commitment the individual made while surfing the net… On working hours … Who later sued you once disciplined…
Yes, people need to know the commitment made by their employer … And read the reservation of rights clause, too.
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It seems to me we are talking apples and oranges. Individual actions by people is hardly the same as a corporation changing the rules of the game midstream and often when employees or retirees do not have time to adjust.
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As you know, there has been a ton of litigation over prospective pension and retiree medical changes. Pension changes can only affect future accruals. Every employer I know has reserved the right to make prospective pension changes. This is not Europe. So, when people misunderstand the commitment that nothing will change prospectively, that I can “lock in” benefits by simply continuing employment, that is obviously wrong, and a communications failure. The erosion of db plans and changes in future accruals has been going on for over 25 years .. What, it can’t happen here, or to me?
Same for retiree medical – that does not vest …
People need to know what the actual commitment is… And that it is not a commitment to maintain the current plans, and their current features indefinitely.
Point is companies are not changing the rules, only applying the rules as they have long been in place – asserting their ability to make prospective changes. And, if they want to commit to maintaining existing plans and features for all current employees for as long as employment continues, nothing stops them from so providing in their plans.
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Of course technically you are correct. However, that is little comfort to the people affected. Employers have little trouble touting their great benefits to attract new employees, yet they have less trouble pulling the rug from under people usually for short-term results.
Back in 1995 I went to senior management with a plan to completely revamp benefits for employees hired after a future date. I set out my perceptions of the changing organization and competitive environment and asked if I was correct. They said I was correct so I presented the new plan which eliminated retiree medical, dental and life insurance. It replaced the traditional DB plan with cash balance, cut active life coverage and disability benefits and increased employee medical cost sharing. In short, it saved tens of millions of dollars and by now well over a hundred million and of course put an end to the growth of retiree liabilities.
I did that to avoid more drastic actions that would take away from current employees. Everyone said I was crazy. My own boss did not support the idea and said I had no chance of negotiating such a plan with the unions. The year after implementation for non-union employees, I negotiated the same plan with five unions and subsequently did the same with two more unions through acquisitions.
Today more than half the workforce is in the lower cost package.
In 2010 after I was gone, a consultant got the ear of the CFO with an idea to deal with the falling stock market and lower interest rates and their impact on the pension funding; freeze the old pension plan and begin accruing future benefits under a new formula. Since the unions would not even consider it and employees hired after 1995 were not participants, only a group of non-represented employees hired before 1996 were affected. These employees, all with decades of service, had their anticipated pension cut, in some cases quite significantly. So, if they looked at their projected pension on December 31 they saw one amount and if they looked on January 2, they saw a projected annual benefit several thousand dollars less. Many had to change their retirement plans and morale was destroyed.
Was it reasonable for these employees to expect this to happen? Was it fair or even necessary, especially given the stock market recovers and interest rates rise again as has happened?
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Reasonable? That would be a function of expectations. What expectations were created?
During the period 1985 -2009, we amended the pension plan at least 6 times and retiree medical almost annually. When we reduced future accruals, we focused on reversing the improvements made from 1975 to 1985, when my predecessor added costly and not sustainable improvements – change to 3 year fap, massive early retirement subsidies, guaranteed post retirement cola, early eligibility (age and service) and faster vesting.
We did reservation of rights and other communications every time … But most importantly, we demonstrated near annual changes … And always confirmed more to come.
One difference perhaps, is that we let early retirement subsidies go, as well as the post- retirement cola, in favor of being able to continue to sustain an accrual rate so that the nominal dollar amount of benefit commencing for those who worked up to normal retirement was not significantly impacted – even though the value of the benefit was.
With respect to interest rates and stock returns, those affected funded status and balance sheets – at your former employer and at mine, too. However, we had aggressively funded both the pension AND retiree medical (401(h), VEBA, etc.), and had aggressively moved to change investment policies, asset and liability matching, reducing equity exposures and lengthening bond duration just in time for the collapse… so, instead of $660mm in investment losses (had we maintained the prior investment strategy), we actually achieved a more than an 8 percent return from 10/1/2008 through 9/30/2009.
Bottom line, we knew we could not sustain the plan without changing the risk exposure, to reflect lower projected returns… Coupled with better funding. And we told employees that, pretty much every year.
Db’s are tough business propositions… We decided lower accrual rates, more conservative investments and constant change was the best option. So far it is “working”
Chances are the current structure at my former employer is probably no better or. Worse than at your former employer,but the perceptions are probably much different, as well as expectations, satisfaction, etc.
Perhaps one other difference, is that for those hired prior to 1981, we were able to show that benefits accrual rates in 2009 were not less than accrual rates in 1980.
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I’m a great believer in promising only that which you can sustain in good times and bad. The pension plan I refer to was started in 1911 and made it through the Great Depression with only a temporary 10% cut in benefits (as was active pay). It wasn’t even funded until 1967.
It sounds like the plan you mention did not meet that criteria, in fact it sounds more like a state pension plan. The changes I mentioned were made after the major and actually needed changes had already been made.
Dick
Richard D Quinn
Blog http://www.quinnscommentary.com Twitter @quinnscomments
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