DEVELOPING A SUSTAINABLE RETIREE HEALTH PLAN STRATEGY.

• Author: Burgoyne, Amy H.
• Position: Report

Medicare Advantage retirees rely on their former employer for medical benefit security. Retiree health plans can be complex to administer, though, and costly in terms of annual expense and long-term liability

Many organizations question their ability to continue offering these benefits. They face the combined impact of cost concerns, administrative complexity, shifting healthcare trends, and market forces, as well as large, unfunded, Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits other than Pensions, liabilities. Some organizations react by altering eligibility, requiring higher retiree contributions, or completely cutting the benefit. In a recent Tower Watson survey, 92 percent of employers cited the burden of long-term liability as the chief reason for seeking change.' But most leaders have no appetite for changing retiree healthcare plans. They fear retiree backlash and prefer to honor benefit promises.

MEDICARE ADVANTAGE PROVIDES AN OPTION

Drastic benefit cuts are not necessary. A customized group Medicare Advantage approach can provide savings on short-term expenses and long-term GASB Statement No. 45 liabilities without compromising plan structure and benefit promises.

Traditional retiree health benefits follow a multi-step process and can be confusing. Medicare Advantage plans deliver a more streamlined experience for retirees and employees. The traditional approach to retiree health benefits pairs original Medicare (the primary payer) with a group-sponsored self-insured plan (thesecondary payer). Neither payer has a full view of claims bills, and the paperwork can be overwhelming for retirees.

Medicare Advantage allows a private insurer to offer a single-source solution: a fully-insured Medicare Advantage plan. The insurer contracts with the federal government's Centers for Medicare and Medicaid Services (CMS) to provide the retiree with Medicare Part A and Part B benefits in return for a monthly stipend. The CMS contract allows the Medicare Advantage plan to offer additional health-care benefits to improve retiree health and reduce costs. The Medicare Advantage plan manages all aspect of plan administration and the CMS relationship.

SIMPLICITY IS KEY

Retirees and plan sponsors appreciate simplicity. The "traditional" approach to retiree health benefits is a multi-step process for retirees and providers:

1. Retiree visits provider, who files two claims--one with Medicare and the other with a secondary plan.

2. Medicare pays first, the supplemental plan pays second, and the retiree pays the balance.

3. Retirees cobble together multiple bills and statements (often long after the health-care visit) to understand who paid and how much was paid.

4. No single entity has a full view of claims data. Supplemental plans typically lack care management services (because any savings would accrue primarily to Medicare).

The Medicare Advantage plan streamlines the experience for retirees and employers. Retirees use one ID card, and all claims go to a single source: the Medicare Advantage plan. Retirees enrolled solely in an Medicare Advantage plan don't need to sort through bills and paperwork from multiple sources.

REVENUE AND EXPENSE STRATEGIES FOR PREMIUMS AND PRICING

The Medicare Advantage plan's structure simplifies the process. The insurer funds the plan with a stipend from CMS and a premium from the employer. The insurer receives the monthly stipend in return for providing Part A and Part B benefits, and...