Employers Explore Alternatives for Retiree Coverage

Half of the 122 companies surveyed by Willis Towers Watson this summer said they were concerned about increasing retiree medical costs.

As healthcare costs rise, businesses are looking for new ways to provide medical benefits for their retirees, and one option of interest is replacing group benefits with individual insurance through private marketplaces for retirees who aren’t yet eligible for Medicare, according to a new survey by Willis Towers Watson.

Half of the 122 companies surveyed this summer said they were concerned about increasing retiree medical costs, which are projected to jump by 4.8% next year for those who aren’t yet eligible for Medicare, compared to 3.6% this year. For those who are Medicare eligible, costs are expected to rise 2.7% in 2023, compared to 2.1% this year.

“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 for WTW, in a press release.

“Employers are rightfully concerned about this growing burden and are studying all options, including private marketplaces,” she added.

Of those surveyed, one in eight plan to change their retiree medical benefits in the next three years, with half saying the current benefits are too expensive.

More than 20% have either stopped offering or are considering dropping traditional group medical coverage for those who retire early.

Among employers that have ended their traditional group plans, 75% are providing access and financial support to individual insurance through marketplaces set up under the Affordable Care Act.

“The recent passage of the Inflation Reduction Act is making private insurance marketplaces for individual coverage an even more attractive option for retiree benefits. 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,” said Trevis Parson, chief actuary, individual marketplace for WTW, in the press release.