I was a bit surprised by the front-page headline and accompanying article in the weekend Wall Street Journal (IBM to Move Retirees Off Its Health Rolls). The headline and subtext of the article are that IBM is ending health benefits for retirees, leaving them to fend for themselves. But as I read through the specifics that doesn’t appear to be at all what’s happening. Unfortunately, the article’s main impact is to leave an unduly negative impression of private health insurance exchanges.
Retiree health benefits are a big deal, especially for employees who retire before they reach the Medicare eligibility age of 65. A typical early retiree in his or her 50s will face high premiums in the individual market compared to a younger, and typically healthier, person. If they are among the few whose company provides generous coverage they are very lucky.
[On a side note, life is about to get easier for early retirees who have to buy their own insurance, thanks to Obamacare's banning of medical underwriting and limits on the ratio of premiums charged to older people versus younger ones.]
When a person turns 65 life gets a lot easier on the health insurance front as the federal government takes over the vast majority of costs. As a result, a retiree on Medicare is much cheaper for an employer to provide health care benefits to, since they are essentially just paying for supplemental coverage.
Based on the article it seems that IBM is only changing its benefits for Medicare-eligible retirees. And it’s not cutting them off, either. Rather it’s giving them access to a health insurance exchange where they can use the funds IBM gives them to shop for a policy that best fits their needs. IBM already capped its retiree health insurance contributions so this policy should help retirees get more out of their benefit.
This article –and many others– equates being put on the exchange as a kind of punishment or abandonment. In fact, all else being equal (i.e., contributions levels staying the same) being on an exchange should be beneficial to retirees or employees due to the increased choice. That’s why exchanges are an excellent option –and not just for retirees. Unfortunately, some companies may use the shift to an exchange as a way to cut benefits. The same phenomenon is present with high deductible health plans. These plans are not inherently less generous than traditional coverage as long as the employer contributes to the HRA or HSA. But such innovative plans, and now exchanges, have been linked in the public’s mind to a cheapening of benefits.
I expect to see the WSJ publish some letters in response to the article. It will be interesting what they have to say.
David E. Williams is co-founder of MedPharma Partners LLC, strategy consultant in technology enabled health care services, pharma, biotech, and medical devices. Formerly with BCG and LEK. He writes regularly at Health Business Blog, where this post first appeared.