Employers are searching for alternative retiree healthcare benefit options

Almost 40% of employers made changes to their retiree healthcare benefits in the last three years, while another 63% plan to in the next thre years, the Willis Towers Watson survey found. Some are looking to replace their traditional group plan offerings with individual insurance through a private marketplace.

Concern over costs is driving some employers to consider making changes to their retiree healthcare benefits, a new survey shows. Almost half of the employer respondents said they are looking to do something different because the benefits are too expensive to maintain. 

The Willis Towers Watson (WTW) survey, released Tuesday, received responses from 122 U.S. employers in July and August. The companies employ a total of 1.9 million workers.

Almost 40% of employers made changes to their retiree healthcare benefits in the last three years, while another 63% plan to in the next three three years, the survey found.

About one in five, or 22%, of respondents said they have already stopped offering their traditional group plans to pre-Medicare eligible retirees or are considering it. Of these employers, 75% said they have or will replace their group plan with access to individual insurance through a private marketplace, along with financial support, which refers to covering a portion of premiums for employees/retirees. Another 13% said their organization’s strategy is ending all access and financial support, while 4% said they are replacing their group plan with access to individual insurance through a private marketplace without financial support. 

“With meaningful cost increases coming, employers aren’t sitting still. For now, they remain committed to offering retiree healthcare benefits and a positive retiree experience. But they’re looking for ways to provide them more cost effectively,” said Lindsay Hunter, senior director of health and benefits at WTW, in a news release. “Employers are rightfully concerned about this growing burden and are studying all options, including private marketplaces.”

Offering individual coverage through private marketplaces has recently become more popular with the August passage of the Inflation Reduction Act, said Trevis Parson, chief actuary of health and benefits at WTW.

“The recent passage of the Inflation Reduction Act is making private insurance marketplaces for individual coverage an even more attractive option for retiree benefits,” Parson said in the news release. “In particular, the extension of premium tax credits and the improvements to Part D plans position private marketplaces to better offset rising healthcare costs for both organizations and their retirees.”

Half of the respondents said they are moderately to extremely concerned about cost increases in retiree healthcare, and another 33% said they are somewhat concerned. Costs are expected to increase 4.8% next year for retirees not eligible for Medicare and 2.7% for those who are eligible, up from increases of 3.6% and 2.1% last year, respectively. Employers said these increases will likely conflict with improving other benefits, add pressure to companies’ balance sheets and profits, affect cash flow and limit hiring of new employees.

The findings show employers that while costs are rising for retiree healthcare, there is a silver lining with the Inflation Reduction Act improving benefits in the marketplace, Parson said.

“The survey reveals a clear concern about the cost of retiree healthcare. It also shows employers want to deliver retiree medical benefits of value and reveals the go-forward alternatives they are considering,” Parson wrote in an email. “Current economics are increasing the cost pressure, but, fortunately, legislative and market solutions present opportunities for plan sponsors to address this pressure while continuing to provide participants benefits they value.”

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