As Retiree Health Benefits Decline, Exchanges Seen as Saviors
Companies view the new state health exchanges as a viable alternative to employer-based support, according to a new report.
A shrinking number of private sector retirees receive health benefits from their employer, according to a new study from the Employee Benefit Research Institute (EBRI), and state-based health exchanges could increasingly be asked to pick up the slack.
The percentage of workers employed at private companies that offer retiree benefits fell from 29 percent in 1997 to 18 percent in 2010. Over the same period, the percentage of retired workers with employer-based health benefits declined from 20 percent to 16 percent. And even if retirees do receive some kind of health benefits from their employers, they’re likely going to be paying more for it: 78 percent of employers say they’re at least somewhat likely to increase the portion of premiums that retirees pay next year.
A similar trend has been observed in the public sector: in 2003, 95 percent of state governments offered health benefits to early retirees and 87 percent did so for those who were eligible for Medicare. Those figures dropped to 70 percent and 63 percent in 2010. Local governments also reined in their retiree coverage over the period: early retiree coverage decreased from 95 percent to 78 percent, and Medicare-eligible coverage fell from 86 percent to 67 percent. And, again, retirees are paying more for their additional coverage: 21 percent of local governments eliminated the employer contribution for early retirees and 32 percent did so for the Medicare-eligible.
The budget crisis that state and local governments have endured in recent years has played a role in those trends—and the economic downturn that precipitated it could be responsible for the movement in the private sector. But there is also a less obvious, but perhaps equally important factor, according to the EBRI study: two rules passed by federal agencies essentially required the private and public sector to account for the costs of future retiree health benefits now instead of postponing the liabilities. Because that accounting change made an immediate impact on private and public checkbooks, employers began to overhaul the health benefits for retirees.
This narrative also fits with the broader problem of declining retiree savings and the coming turmoil for Medicare, the presumed fallback for employees without employer health benefits. A 2011 AARP survey found that more than half of Americans over 50 are somewhat or very uncomfortable with their retirement savings. And the financial stability of Medicare—expected to balloon from $591 billion in 2012 to more than $1 trillion by 2021—has been a central topic during the presidential campaign. Most expect any deficit reduction deal to include major changes to the program, though specific are scarce, at the same time that retirees are less likely to have any additional employer-based support.
So what are states going to do? The reforms to government pension plans have been extensively documented, and some states have even considered opening state-run retirement programs for private sector employees, as Governing reported earlier this year. State and local governments are also taking a hard look at their own retiree health coverage and exploring new options, such as creating medical trusts that pay out for health benefits or funneling tax revenue to address shortfalls.
As for the private sector? The state health exchanges created under the Affordable Care Act (ACA) are increasingly being targeted as a source of relief, according to ERBI. More than half of employers have said they are at least somewhat confident that the exchanges—and the accompanying reforms, such as guaranteed issue, community rating and premium tax subsidies, intended to drive down costs—could be a viable alternative to employer-based coverage for retirees. Under the law, employers can simply put a set amount of money in a health reimbursement account that employees can then spend on insurance plans purchased on the exchanges.
As the ERBI study’s authors put it: “As employers view state-based exchanges as a viable option for retiree health benefits, they may view their role in providing health coverage to retirees as no longer necessary.”