Retiree health care benefits: strategies for a changing workforce.

Demographic, economic and cultural trends foretell a dramatically different environment for retiree health care coverage. This article will focus on the redesign of retiree health benefits to meet the retirement objectives of employers and employees, anticipate changing demographics, and respond to changes in Medicare and other government initiatives, including the Consumer Bill of Rights. The material will discuss recent design trends, including managed care, and present results of a study the author co-authored for the Kaiser Family Foundation on changes in retiree health plans.     

The impact of health care reform on older workers, retirees and employers

The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 impacts everyone who uses or pays for the health care system. Among the new law's effects will be changes in older workers' health care choices as they transition from full-time employees to part-time work or other jobs and, ultimately, to retirement, and the retiree health benefit choices facing their employers. This article reviews the major issues surrounding these changes, including those affecting retiree health benefits, benefits for Medicare-eligible retirees and health care options for older Americans not yet eligible for Medicare. The authors conclude that although employers will be reacting in 2010 and 2011 with regard to some issues surrounding FASB ASC 715-60 and the early retiree reinsurance program, employers should consider waiting to make major changes until regulations are issued and the health plans for active employees have been fully vetted.     

A sign of the times.

Pressure placed on employers to enhance the bottom line comes from a multitude of changes in the marketplace and has resulted in employers seeking to limit their liabilities and expenses for retiree medical care. To address retiree medical issues, employers have adapted a number of strategies that are presented in this article. These include eliminating or modifying benefits, using a defined contribution approach, capping subsidies and enrolling retirees in Medicare HMOs.     

Retiree health care costs: a workable plan

Thirty-three million retired Americans have taken for granted the warm security that health care would be provided throughout their retirement--by Medicare, by their employers, certainly by someone, because it must be an inalienable right. As the financial aspects of retiree health care are examined, however, it is important to keep in mind who will pay for it and how much we are willing to spend. This raises three important questions: Are we ready to spend that much? Is that sum enough to produce the system we want? Will we get our money's worth or just start another round of health care inflation? This article suggests two programs, one for addressing this staggering problem and another to deal with the financing of retiree health care.     

Alternatives to traditional Medicare: Medicare Part C poised to prosper

Recent events indicate that Medicare Part C (Medicare Advantage) plans are poised to prosper. Yet many employers express hesitation to offer Medicare Advantage, formerly known as Medicare+Choice, plans to their retirees because they are concerned about the potential withdrawal of those plans if there is a reversal of federal funding rules. This article addresses those concerns. It provides a historical overview of Medicare Part C and describes the impact of the most recent agency guidance. The author cites plan trends, raises employer implications and concludes that Medicare Advantage plans will continue to expand, possibly facilitated by employers as they implement leading-edge retiree medical designs.     

Retiree health care benefits: new rules, new strategies.

Two recent court decisions in a retiree health care benefits age discrimination case are likely to bring changes to employer-sponsored retiree health care. After reviewing the cases and how the Equal Employment Opportunity Commission has responded to them, this article discusses employer implications. Although the court decisions add complexity to retiree health plan design, they also provide employers with the valuable opportunity to analyze the match between their retiree health plans and business needs.     

Medicare retiree drug subsidy compliance considerations

Employers and plan sponsors have struggled with many issues associated with Medicare's retiree drug subsidy program. Recent reviews of employer methods for collecting the subsidy from the Centers for Medicare and Medicaid Services (CMS) identified significant gaps that would affect the subsidy payment and create issues in case of an audit. In fact, the Department of Health and Human Services Office of Inspector General (OIG) has placed audits of employer retiree drug subsidy processes in its work plans for 2006 and 2007. This article discusses areas that employers must address now to avoid significant long-term financial and compliance problems in the future.     

Manufacturing firms' decisions regarding retiree health insurance

The trend for employers to discontinue offering retiree health insurance has profound implications for a large and growing share of the U.S. older population. The authors explore factors related to the firm's decision to offer and contribute to retiree health insurance using data from manufacturing firms. Their findings indicate that while firm characteristics, such as size and age, affect the probability that a firm offers retiree health insurance, employer contributions to this benefit are significantly related to the firm's financial performance and the alternative insurance options available in the market. The article concludes with a brief discussion of policy-related measures with potentially important implications for the future of retiree health benefits.     

Can managed care reduce employers' retiree medical liability?

The Financial Accounting Standards Board (FASB) has forced U.S. companies to look squarely at their current retiree health obligations and their future commitments. Accounting Statement No. 106 (FAS 106) requires employers to accrue liabilities for retiree health benefits during employees' active service, rather than record the costs as benefits are paid. Employers are scrambling to find ways to reduce the statement's effect on corporate balance sheets. While managed health care has been increasingly employed to control benefit costs in active employee health plans, it has not been as popular in retiree plans. This article reviews important demographic and health trends in the retiree population and summarizes employers' early responses to FAS 106. It explores why managed health care has thus far played a limited role in reducing employers' postretirement medical liability, and offers insight into how that role could be increased in the future.     

Retiree health benefits in the United States: a strategic critical management review

This article provides a critical review of studies associated with retiree health benefits in the United States. An attempt is made to determine if logical conclusions or trends could be identified regarding this issue of health care policy debate. The forms of retiree health benefits are covered, as is a discussion of Medigap policies and insurance coverage for the elderly. Employer-sponsored retiree benefits and the effects of supplemental coverage on the use of services are also reviewed. Lastly, a discussion and conclusion regarding this research agenda is presented with a critical analysis of the health care policy management debate for the future.     

Accounting as discursive construction: The relationship between statement of financial accounting standards no. 106 and the dismantling of retiree health benefits

This study explores reductions in benefits that occurred coincident with the passage of Statement of Financial Accounting Standard 106 requiring companies to accrue a liability for unfunded retiree health benefits. Congressional hearings and the business press reveal two competing discursive constructions of the retiree health benefits crisis. The first portrayed them as moral obligations that firms were attempting to avoid, the second as unexpected liabilities threatening corporations. Drawing on the work of Skocpol (1992), Weber (1949, 1978) and Burawoy (1983, 1985), we argue that characterizing these benefits primarily as accounting liabilities reinforced the second construction, facilitating corporate efforts to roll back retiree health coverage.     

Communicating the need for additional savings in the face of retiree health benefit cutbacks.

In preparing for retirement, employees need to consider not only their pension benefits but also the challenge of financing their retirement health care needs. Various trends evolving in our society indicate that future retirees will be increasingly dependent on their own retirement savings. Evidence suggests that employees are not fully aware of the significance of health costs in retirement and must be educated to the need to save for retiree health care expenses. This article discusses the issues of Medicare reduction and retiree health benefit cutbacks and the relative communication and education challenges such issues pose to employers.     

Retiree medical--round 2

The second round of changes resulting from FAS 106 will be less dramatic than the first. But employers can anticipate that overall retiree health care costs will be reduced, averting the need to increase pensions or other retiree benefits. A fixed dollar benefit design will justify a lower accounting cost.     

Accuracy of Long-Range Actuarial Projections of Health Care Costs

The Office of the Actuary, mandated to provide projections of future medical spending for use by the U.S. Medicare and Medicaid programs, publishes forecasts that have been widely used by private firms and government budget officials as a baseline for expected long-run premium trends and to estimate liabilities for retiree health benefits. Although these projections have been made publicly available since 1986, they have not yet been subject to systematic evaluation by an external reviewer. This article develops a method for assessment of both short- and long-run accuracy and applies it to the 17 sets of projections made public over the last 25 years. The more recent set of projections (1998–2010) incorporating lagged macroeconomic effects appear to be more accurate than the older (1986–1995) projections that relied more heavily on demographic cost of illness trends. The average annualized error of the forecasts is approximately 0.5–1% per year, whether assessed over a span of one, two, or 10 years. Projecting “excess” growth in health spending (the rise in the share of wages or GDP) tends to be more accurate than forecasting nominal or real spending per capita.     

“Long-Term Yield Rates for Actuarial Valuations”, Jacques F. Carriere,July, 1999

Abstract

This paper explores the relative significance of aging as a determinant of financial cost of health care beyond age fifty, with particular attention to the effect for ages 65 and over. The paper presents concepts of aging factors and aging curves, which define relative values between ages for utilization or cost of health care services. General conclusions are drawn from Medicare data that utilization and cost differ by age, but that aging factors vary across services and may be less significant at the very old ages. The author then turns to the question of measuring the significance of an aging curve assumption and what accuracy is lost in the simpler alternative of a single value across an age range. The practical effects of relative value aging curves are examined through hypothetical examples of increasing complexity in a retiree health valuation. A method to measure the impact is put forth. Three important variables are discussed in some detail. A survey to ascertain aging curve findings and preferences of health actuaries is introduced and discussed, with one representative curve presented. This curve is then measured to understand its impact vis-à-vis other curves.

It may be important to note this is not a study deriving a recommended aging curve. Rather, it is an exploration of the significance of an assumption that has not received much public actuarial scrutiny. A conclusion places the paper-s findings in a context of a dynamic health care economy in an aging society.     

Accounting for postretirement benefits: early adopters of SFAS 106

A study of companies that adopted SFAS 106 early reveals the companies generally have not funded retiree health benefits. The timing of a firm's adoption of the accounting standard is affected by a number of variables specific to that firm.