Thousands of retirees covered by company health insurance plans will soon see their benefits shifted toward private health-insurance exchanges.
IBM and Time Warner announced the change last week. They’ll provide retirees money to buy Medicare Advantage or supplemental Medigap policies instead, part of a push by businesses to move away from the increasingly costly group-coverage model.
American Airlines may follow. Its parent company, AMR Corp., is seeking approval to make the change from a federal bankruptcy court judge.
Observers say other large companies are likely close behind.
“IBM is making a Medicare exchange available to you because the rising cost of healthcare in current group-coverage model is no longer sustainable for you or the company,” Chief Health Director Kyu Rhee said in a video message to retirees. “In fact, we project that healthcare costs in the current IBM plan will triple in the next few years, largely affecting your premiums and out-of-pocket costs.”
Private exchanges have existed for several years, but are only recently catching on. They are separate from the public health insurance marketplace being created by the Affordable Care Act.
Like the public exchanges being created under the ACA, private exchanges offer a marketplace of insurance plans from which to choose. In the ACA-created exchanges — opening for enrollment Oct. 1 in Florida — the government will subsidize premiums for many of the poor. In private exchanges, the company’s contributions help pay the costs of plans offered.
The share of companies offering retiree health benefits has been declining for decades, said Patricia Neuman, a vice president of the Henry J. Kaiser Family Foundation and director of the foundation’s Medicare Policy Project.
Companies with retiree health obligations, she said, have faced “an ongoing struggle on how best to manage the costs.”
Some have opted to increase premiums or cap the amount they pay into retiree health benefits. But others are giving retirees a fixed amount of money to spend on health insurance, and allowing them to select their own plan in a private insurance marketplace.
Jon Urbanek, a senior vice president for Florida Blue, said the option makes sense for both employers and retirees.
“It helps the employer by reducing some of the liabilities,” said Urbanek, whose company will be offering its products on the private exchanges. “But it is also good for the retirees, because it gives them an abundance of choices.”
C. William Jones, chairman of the advocacy group ProtectSeniors.org, disagreed. He likened the shift to “pushing your retirees off into the sea into a rowboat with no oars.”
“The deal was, you worked for your compensation package and you were going to be secure for your lifetime,” Jones said. “Now they are changing the rules. That’s not fair.”
It is too soon to say what the changes will mean for individual retirees.
In the case of IBM, the company’s 110,000 Medicare-eligible retirees don’t yet know how much the company will give them in a health-insurance spending account — or what kinds of plans will be offered.
The exchange will be managed by Utah-based Extend Health.
Judy Manowitz, a Tampa resident who retired from IBM after 26 years, currently pays about $200 a month for her company-subsidized insurance, she said. She isn’t expecting to pay more in the new marketplace.
“If they are going to give us similar plans, then it shouldn’t be too bad,” she said.
Manowitz sees at least one advantage to the private exchange.
“Many IBM retirees are confused about their coverage,” she said. “With Extend Health, you have to work with someone.”
But Justin McCarthy, president of the IBM South Florida Quarter Century Club and Alumni Association, is skeptical. He worries the benefits offered on the healthcare exchanges won’t be as good as what he currently has.
“None of the IBM retirees are real happy about this,” said McCarthy, who worked as an electrical engineer at the Endicott, N.Y., and Boca Raton plants for 38 years before retiring in 1993.
“But it’s the way the business world is going on today. Large companies can’t afford to provide the benefits they had intended to provide.”