For many employers, finding an affordable way to provide insurance benefits for retirees can be a difficult task.
Many companies rely on traditional Medicare but supplement or “wrap” that policy with additional coverage. However, there is another option available: Medicare Advantage Plans, says Joan Budden, chief marketing officer at Priority Health.
“Employers with wrap plans get their primary coverage through the federal government in Medicare Part A and B, then wrap that with some additional benefits to get back to a full level of coverage,” says Budden. “Medicare Advantage provides both the core benefits you would get with Medicare A and B and the wrap benefits all in one plan.”
Smart Business spoke with Budden about the options available for employers to offer retiree benefits and the pros and cons of each.
What options do employers have for retiree coverage?
Historically, in Michigan, employers provided retiree benefit coverage. If retirees were under age 65, they would buy private insurance, and once they reached 65, the retiree would sign up for Medicare and the employer would purchase a private plan to wrap around Medicare. In today’s economy, if employers continue to offer benefits, either they don’t change the historical way of doing it — Medicare — or they move to one of two newer ways to provide coverage.
One is a financing mechanism to give employees a set dollar amount — a defined contribution benefit — and let them shop for the coverage that best meets their needs. The other way is to select a Medicare Advantage Plan for the group as a whole.
How does the defined contribution method work?
When moving to a defined contribution plan, employers are trying to limit their financial exposure and are earmarking a particular dollar amount toward their employees’ retirement, now and in the future.
This method limits some financial exposure for the employers. In addition, it lets employees know — in advance of their retirement — what they can expect from their employer and what they’ll have to contribute on their own.
When this approach is used, employees tend to find plans that best meet their needs instead of using one generic plan for the whole retiree population. Different retirees have very different expectations of their retirement plans, and what one may want is not the same as what another may want. This option allows them to better customize their plan, although it can be scary because it may be the first time they are shopping for coverage on their own.
There are many avenues to help them find the right plan: There’s lots of information online, or they can visit a walk-in center for a face-to-face meeting with the potential carrier or consult with an agent.
