Study: Many companies weighing options for retiree medical benefits

WASHINGTON, July 2, 2007 – Many employers are looking at new ways to provide retiree medical benefits now that market and regulatory changes are firmly in place, according to experts at Watson Wyatt Worldwide, a leading global consulting firm.

Although the Medicare Modernization Act was enacted in late 2003, it has taken years to fully implement the law and for the private market to respond with new medical and prescription drug coverage options for retirees. With such options now available, employers are moving beyond sponsoring plans that solely supplement Medicare benefits. Many are now offering account-based programs and Medicare-approved health plans run by third parties.

“Retirees might be nervous about changes to their health care plans, but the new options offer a very reasonable compromise,” said Cara Jareb, director of retiree medical consulting at Watson Wyatt. “They ensure retirees will continue to have access to comprehensive medical insurance and, at the same time, allow employers to reduce administrative burdens and potentially stem health care benefit costs.”

The 12th annual National Business Group on Health/Watson Wyatt survey on employer-sponsored health insurance found that many large employers have already moved away from traditional defined benefit retiree medical plans. Only 18 percent offer such a program to new hires upon their retirement, with another 15 percent offering some financial support. Two-thirds (67 percent) of employers do not offer new hires financial help in paying for medical insurance upon their retirement.

However, instead of moving completely away from traditional retiree health benefits, some employers are turning to employer or group prescription drug plans and Medicare Advantage plans. Medicare Advantage plans allow eligible recipients to choose alternatives to traditional Medicare plans and combine them with a drug benefit. In 2006, the average premium for Medicare Advantage plans administered by third parties was $312 per year – nearly $3,000 less than the average employer-sponsored plan for Medicare retirees, according to Jareb. However, retirees generally experience greater out-of-pocket costs in Medicare Advantage plans.

Given the new choices, a number of employers are offering health savings or health reimbursement accounts to help retirees purchase a plan of their choice. “An account-based program can help employers define their retiree medical commitment and make costs predictable. It also allows retirees to choose the benefit that is right for them,” said David Speier, a senior consultant in Watson Wyatt’s retirement practice.

More information on Medicare Advantage plans can be found at www.watsonwyatt.com/medicareadvantage.

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