Start Thinking About the Impact of Medicare Reform on OPEB Plans

Employers who offer retiree health benefits to their employees have something new to think about: How will proposed Medicare reforms impact my plan and its costs? Although changes to the Medicare system are likely a long way off, Medicare reform is a hot topic lately and changes to the program could have a dramatic effect on your retiree obligations if you aren’t prepared for it.

A recent Governing article provides a good summary of the relevant issues for public employers. Many of these ideas are equally applicable to private sector retiree health and OPEB plans. I thought it would be useful to summarize some of these points and add a couple of other considerations.

– If a retiree medical plan offers post-65 coverage to retirees, it is often through a Medicare supplement plan which just pays costs that aren’t covered by Medicare. If Medicare payments for benefits decrease, then this will increase the costs paid by the employer plan.

– Suppose that changes to the Medicare program are extreme and it starts paying a premium subsidy instead of paying for benefits. In this situation, Medicare would pay a fixed monthly cost while private insurers (or employers with self-insured plans) would end up paying for the variable benefits. How might this affect employers’ willingness to offer post-65 coverage?

– Lower benefit levels or higher out-of-pocket costs for post-65 coverage could force older employees to stay on the job longer to maintain their active health coverage. How would this affect your workforce demographics and active health plan costs?

It’s really too soon to speculate on what Medicare reform might ultimately look like. However, it’s not too early to consider a range of possibilities and what risks they pose to your plan. At some point Medicare reform will become a reality and plan sponsors should be thinking now about how this could affect their plans.

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