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.

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12 Responses for “Health Exchange Confusion: Why We’re Getting the IBM Story Wrong”

  1. In a nice coincidence, I happened to be sitting in the kitchen of one of those lucky IBM retirees we’re talking about when a call came in from the benefits folks explaining the changeover. The reaction was not the enthusiasm one might expect given the “wonderful new choices on offer.” It was shock and confusion. Real shock and confusion. What the hell does this mean? Why is this happening? We had an agreement with IBM – we had a tacit understanding. I worked for this company for twenty five years. You’re telling me that my solid health insurance is going to be replaced with a hypothetical product that isn’t even on the market yet? This is not reassuring.

    All the signs are that my better choice will carry with it limitations that will make navigating the healthcare system harder for me to navigate. From the stories I’ve heard, it sounds a lot like I’ll have fewer doctors to choose from.

    It may be that “better choice” will end up being better in the end for those that are able to work out what it all means – but you’re going to do a much better job of backing that up than talking robotically about “more choice” and “better value” l

    You sound like you work for the cable company. And that is a very bad sign.

  2. Ouch, Bubba! The cable company?

    No doubt the transition will be confusing for some. Change is usually tough, though. But in the end we’re much better off when the end customer has some idea of what things cost in health care: insurance, doctor visits, hospital stays, prescriptions, etc.

    I find it hard to feel too sorry for Medicare-eligible IBM retirees who are still quite well taken care of.

  3. BenefitJack says:

    This is nothing new – IBM is just catching up.

    Exchanges for Medicare-eligible retirees, allowing a selection of coverage among the available Medicare Advantages options in a particular geographic location, has been in place since 2006, and took off starting 1/1/08 when HRPA updated its offering/structure.



    IBM has been a leader in the HR Policy Association for many, many years.

  4. MJ says:

    Medicare can be very confusing because most people don’t understand health insurance. Then we have open enrollment which makes it even more confusing because most people never read the Annual Notice of Changes for 2014. I have an interest in healthcare and Medicare and discovered that First Health Part D Value plan is having a 60% premium increase and a 300% increase in generic drugs. I wonder who allows these increases or are the insurance companies given Carte Blanche?

  5. MM says:

    A Health Care Exchange is supposed to generate competition and drive pricing down. After my my Father worked 30+ for IBM my Mother’s choices have been narrowed down to one provider and one provider only brokered by a worthless middle man named Extend Health. Thanks a lot IBM !!!. So much for loyalty.

  6. Fred Kempf says:

    IBM makes it sound like they got out of Health Care plans for retirees because premium costs were skyrocketing. It is true, HC premiums, and Medicare HC Group Plan,( via IBM) have increased threefold in the last 3-4 years. However, IBM already set a cap on what they paid toward these premiums, so they are not changing over to an EHE because the premiums are getting to high for them, but for the retirees. A lot of retirees, that have been on Medicare for several years, already have bailed out of IBM’s Group Medicare Plans. A lot of them had gone to individual Medicare Advantage plans with zero premiums, and a lot with zero to low co-pays.
    IBM has forced Medicare Retirees to a middle man, called Extend Health.
    Medicare Retirees must use the plans in the EHE , or they won’t get their annual subsidy amount. This EHE does nothing different than one can do by reading their annual Medicare publication, and choosing one of the many Medicare Advantage plans listed in the comparison charts. There are more plans listed in this publication for one’s County, than what EH offers. My experience is that EH licensed benefit reps. simply don’t know what they are doing, and don’t even know the rules of Medicare.
    For example, If one already has a Medicare Advantage plan, he/she CANNOT enroll in this same plan via EH. They must select another plan. These are Medicare Government rules, which were changed in the last year or so.
    EH’s publication states a major falsehood in indicating “one can keep their existing health care plan”, and most EH licensed benefit reps. believe this.
    IBM retirees are also loosing their Dental and Vision group plans, and there are hardly any to choose from via EH. If there are, the premium costs are prohibitive, especially if supporting dependents, or a spouse. The wait times in dealing with EH are absolutely horrible.
    In summary, IBM, using the EHE has made a lot of IBM Retirees lives miserable, uneccessarily. Being the biggest in any industry like EH, does not mean they are the best. There must be a better way, of experienced retirees on Medicare, for them to do this.

  7. Alan Lidstone says:

    IBM has told their retirees that the changes to healthcare, dental, and vision benefits will not adversely affect retirees and will help them obtain better healthcare. Unfortunately, the changes implement several changes which lessen the value of the IBM benefits.

    Infrequently mentioned is that IBM substantially reduced the $3000/$3500 HRA benefit for medical, pharmaceutical, dental, and vision expenses for any retiree that wanted to continue the currently free survivor benefit for coverage.

    Also rarely mentioned is that IBM retirees not purchasing medical or pharmaceutical coverage through Extend Health will not be able to receive any HRA benefits for dental or vision coverage or any HRA coverage for medical or pharmaceutical coverage purchased elsewhere.

    The new program effectively discriminates against IBM retirees who are receiving VA or Tricare health coverage as their primary provider by denying them from access to any of the alleged HRA benefits for medical, pharmaceutical, dental or vision benefits.

    Neither IBM, nor ExtendHealth, says what happens to the $3000/$3500 HRA if it is not used for the retiree. We know it doesn’t go to the retiree. In closing, the changes definitely benefit IBM and the for-profit health insurance broker (Towers Watson Extend Health). They reduce IBM retiree healthcare costs even further, while providing substantially less access to healthcare benefits for the retirees and depriving them of access to any HRA benefits.

  8. Larry Quezada says:

    As an IBM Retiree, I don’t have an issue with IBM’s change regarding their HRA or Health programs. However, in trying to enroll into the Health and PDP(prescription) offerings, I experienced a catastrophic failure across the various organization involved – I just spoke to Mr. Michael Bean from Extend Health. He confirmed that Extend Health ‘ dropped the ball ‘ in the enrollment process that would have guaranteed Health Insurance and a PDP (prescription) plan for me in 2014. As a result of their lack of knowledge at the Health Consultant level, I am now outside of the enrollment window and they cannot enroll me in a PDP plan. Please note, I began this process on Nov 04, 2013, well within the enrollment window. My current monthly rate is $617 per month and would have dropped to $124 per month (health plan). As a retired person on a fixed income, this is a tremendous financial impact.

    I have written to IBM Executives, Dr. Kyu Rhee (IBM Chief Health Director), Bryce Williams (CEO Extend Health), requesting assistance. To date I have not heard from anyone or their staff. In addition, I called 13 Extend Health representatives, several IBM Employee Service Center consultants (who communicated that they are not our advocate for this process) and United Health Care. At this point, I would reiterate that I believe there is a catastrophic failure in the enrollment process, no real advocate and no options left for me. I can’t believe that I am the only person encountering this process failure across so many individuals, organizations and corporations. I provided the spreadsheet I created for my comparative analysis and the document of all my efforts to obtain health care and utilize the HRA program offered to IBM Retirees. To date, I have heard from no one and it appears that I am on my own.

    • Jane O'Brien Webster says:

      I’ve had a similar experience dealing with Extend Health trying to enroll my mother who is a surviving spouse. I got her on a drug plan but they messed up the medicare supplemental. We started on Oct 15th and it’s still not right. I don’t know if it can be fixed or not. Corporate big-wigs in their “ivory towers” who don’t understand or care about what real people have to deal with hatch up these stupid plans with their fancy marketing language to describe them…. WHAT A MESS!!!

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  10. F.R. Kempf says:

    Regarding the article praising private health exchanges, namely OneExchange, by Mr. Williams.
    For IBM Retirees on Medicare, the only really good thing is the subsidy put into an HRA which we can use for any health care expense.
    As far as OneExchange for us already on Medicare, OneExchange is of no help at all, and even bungle anything we try and do through them. Reading the Medicare book mailed out every year is the “go to” resource for understanding and choosing Medicare plans, not OneExchange. OneExchange also does not know how to handle claims properly, especially those for Medicare premium claims when SHAP claims are also involved.
    Overall OneExchange needs to get their reps properly trained on just about all aspects of signing up for Medicare Supp. or Medicare Advantage plans.

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