Which purchasing opportunities should plan sponsors look for instead?
Today, for a variety of reasons, retiree healthcare provided by group-based plans structurally underperform marketplace plans, both with respect to benefits and premiums. For plan sponsors who are focused on cost management and purchasing efficiency, multi-carrier individual markets are increasingly the preferred choice. But most employers don’t know that they have other options, and as a result, they’re overpaying for retiree healthcare.
For many years, healthcare for retirees could only be provided through the group plan marketplace. Group plans tend to have very comprehensive, high-cost medical and prescription drug plan designs. Deductibles and copays are usually low. Group plans also usually offer broad access to medical and pharmacy networks. Premiums are based only on the retiree group’s age distribution, health status, and utilization.
Why is the multi-carrier individual Medicare market more efficient? Here are five reasons why:
- Plan designs drive efficient behavior. In multi-carrier individual market plans, medical and prescription drug plan designs require meaningful and targeted retiree cost-sharing to encourage efficient use. This is a critical way to eliminate waste and inefficiency in the health care system.
- Efficient networks. Multi-carrier individual markets use medical/pharmacy provider networks that are locally focused. These networks increase purchasing efficiency and provider collaboration in the local community. Many plans also provide national, out-of-network access to any willing provider accepting Medicare, which supports flexibility. Retail pharmacy networks are also designed to reward retirees, by using the most cost-effective providers and drug formularies.
- Care management. Individual market plans include required care management programs to ensure efficient patient oversight; group plans generally don’t provide this for retirees.
- Premiums based on a broader retiree community size, scale and age distribution to create larger risk pools over which to spread claims risk. For the multi-carrier individual market, the size of the risk pool is huge and growing every day. The group plan marketplace is much smaller, and provides coverage only to their limited risk pools, which are often closed to new entrants, have a fixed group of subscribers who age every year and who may even be suffering from specific conditions related to their employment.
- Adaptability and innovation, driven by intense competition. When legislative changes take place, the individual marketplace pivots to take advantage of them quickly; group plans don’t do this nearly as fast, if at all. Group programs also typically don’t do frequent market checks, leading to higher costs. Individual plans compete every month for new enrollees, leading to better overall value for current and new members. Overall, the individual marketplace supports calibrated, personalized plans for retirees, which drives value at the member level and helps support key health equity objectives. This level of personalized relevance and value isn’t possible in a one-size-fits-all group plan.
In summary, the multi-carrier individual market works well for retiree healthcare. That’s because there is a lot of variation in the number of carriers, plan designs, premiums, provider networks, drug formularies, etc. This diversity of options allows every retiree to find multiple plans which will meet their health-care and financial needs, and reduce their cost relative to their current plan. In 2024, employer-based group Medicare retiree health-care programs have become redundant to the individual marketplace.
When employers buy retiree health plans on the individual market, ultimately, everyone wins including the plan sponsor.
Retiree Healthcare
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