If you are thinking about retiring early, you must factor health benefits into your plans. There is a good chance your employer-provided benefits will not be there. Many employers have been looking for a way out of retiree medical and the Patient Protection Act gives it to them on a silver platter.
Several provision of PPACA provide a greater incentive for employers to eliminate or cut back on retiree coverage. The retiree drug subsidy designed to encourage employers to keep prescription benefits for age 65 and older retirees was made taxable to employers. The Early Retiree Reimbursement Program not only highlighted the concern of elimination of this benefit, but also the expiration of the fund will again cause employers to re-think this coverage. Also, the establishment of the health insurance exchanges in 2014 provides a safety net for early retirees thereby making it easier for employers to drop coverage and possibly provide a fixed dollar subsidy for this private coverage.
A new survey from AonHewitt relates where employers stand on these issues.
As for companies in the survey that pay a portion of health coverage for their retirees age 65 or older, three-quarters currently collect the Retiree Drug Subsidy (RDS). Of those, 73 percent said they are altering their retiree drug benefits strategy, as health reform eliminates the RDS tax advantages for 2013, and creates enhancements to the Medicare Part D program for retiree drug benefits beginning in 2011. In fact, 61 percent anticipate announcing these changes by the end of 2011 in order to begin recognizing accounting savings quickly, while 86 percent expect to actually implement these changes
In addition, Aon Hewitt’s survey found that 36 percent of respondents plan to make changes to their pre-65 retiree benefits strategy to directly leverage the health insurance exchanges that states, or the federal government, are required to create in 2014. What’s more, 21 percent prefer moving to a pure defined contribution approach, where retirees could use an account established by the employer to purchase coverage through the exchanges. The balance of these employers anticipate eliminating pre-65 coverage in response to the creation of exchanges.
The ongoing debate over health care reform focuses largely on its impact on the federal government budget and deficit. What we hear too little about are the tens of millions of Americans with good employer based coverage who are feeling the impact of PPACA . PPACA requirements cause employers to re-think how and if they should provide these benefits. PPACA does nothing to control the costs reflected in these plans, but in fact increases costs. Virtually all cost containment strategies being employed result in direct or indirect cost shifting to employees and retirees.
If those who advocate patients having more “skin in the game” or think patients can be made to act like informed objective consumers and thereby control costs are right, by the time this is all over health care inflation should be negative 5%.