Today, employers must manage the cost of health care benefits for their retirees in an era of continuing medical inflation coupled with limited administrative resources. The retirement population continues to grow rapidly. The ratio of retirees to active employees is approximately 10% and increasing. Employers are looking to reduce or eliminate their legacy costs. Furthermore, under the FASB ruling of 1993 and GASB ruling of 2003, employers are required to value post employment benefits such as retiree medical benefits in determining or reporting their earnings. Increasing medical costs overall are putting pressure on retiree medical plans. Administering multiple plans, different billing options, and claims service in many instances containing “hidden costs” not budgeted for in their Human Resource strategy is becoming more of a burden to the employer.

Employers are looking to shift the retiree medical burden to a more consumer driven health plan. Many employers are moving to more restrictive (cost-containment) plan designs. While they may be reluctant to eliminate or even reduce retiree health benefits, retiree health costs continue to increase, making it difficult for employers to continue the same financial commitment to their retirees. As a result employers are turning to HMOs, self-funded plans or eliminating retiree health coverage altogether.

Disadvantages of a Self-Funded Program

• The self-funded plan is directly responsible for all retiree claims covered by the program. The employer bears all the risk.
• Claims may not be consistent from month to month creating uncertainty when budgeting.
• Small employers may find that administration costs can counteract the savings of self-funded plans.
• Many stop loss carriers will not quote coverage where the retiree population is a significant portion of the entire group.

Disadvantages of an HMO

• Limited choice of physicians and/or hospitals;
• Out-of-network services are not covered;
• Many times referrals are needed to see a specialist;
• Unable to accommodate employers with retirees in various states.

What are the Options for Employers?

• Employer-paid Medicare wrap around (fully or self-insured);
• Employer sponsored Group Retiree Insurance Plan (GRIP);
• Individual Medicare Supplement plans (A-J);
• Medicare Advantage;
• Discontinue coverage altogether;
• Do Nothing.

Why Employer Sponsored Group Retiree Health?

• Takes the retirees out of the active medical plan, which can improve the active plan experience;
• Can reduce the FASB 106 or GASB 43/45 liability, allowing the employers to limit the impact to their balance sheet;
• Integrates with Medicare, taking advantage of the Medicare cost containment;
• Fulfills employers’ obligation to their retirees.