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Employers consider changes to retiree health insurance plans

By Maryalene LaPonsie on October 6th, 2012

According to a recent survey, most employers are considering making changes to their retiree health insurance plans.

Aon Hewitt, a human resources firm, says 60 percent of employers either have reviewed or are reviewing how to deliver medical insurance to their retirees.

The employers, representing 5.8 million retirees nationwide, appear to be reconsidering their role in providing health insurance, in light of changes being implemented by the Patient Protection and Affordable Care Act. These changes are encouraging some employers to consider shifting their retirees from group plans to the individual market.

Health insurance exchanges may affect retirees

The health reform law will create health insurance exchanges in 2014 from which individuals can purchase their health insurance coverage. In addition, the government will provide subsidies to those earning up to 400 percent of the federal poverty level to ensure access to affordable health insurance.

Aon Hewitt found 63 percent of employers planning changes to their retiree health benefits either are in the process of moving some coverage to the individual market or considering the move. Shifting retired employees away from group plans would allow them to purchase health insurance coverage through the exchanges.

For many retirees, shopping for individual medical insurance may be nothing new. Aon Hewitt estimates two-thirds of Medicare eligible retirees already purchase their Medicare coverage on the individual market.

Prescription drug coverage also being evaluated

While the creation of health insurance exchanges may be one of the more high-profile provisions of the Patient Protection and Affordable Care Act, it is not the only change to affect retiree health benefits.

The elimination of some tax incentives is encouraging some employers to rethink how they provide prescription drug coverage. The survey found 72 percent of employers are currently exploring how to respond to the new tax climate while the rest have either made changes in 2011 and 2012 or are planning them for 2013.

"The combination of changes to the Medicare Part D and Medicare Advantage programs, along with the choice, competition and generally favorable rating rules, have made the individual market very cost-effective compared to the group insurance program," said John Grosso, health care actuary and leader of the Aon Hewitt Retiree Health Care sub-practice, in a prepared statement. "We expect that there will be a similar opportunity for pre-Medicare retirees beginning in 2014."

For example, of employers making changes to their prescription drug coverage, Aon Hewitt found 32 percent plan to leverage the individual market.

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