How employers can provide health insurance to retirees through Medicare and more Featured

8:00pm EDT March 26, 2010

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.

What if employers want to continue to provide retiree coverage from their plan?

There are two ways to go: the traditional wrap plan or the Medicare Advantage Plan, which is the newer version of the retiree plan. With traditional Medicare plus a wrap, you get the government-run plan and wrap it with the private solution. With Medicare Advantage, you’re getting a full private solution for your retiree benefits.

Medicare Advantage Plans tend to look a lot like coverage for the under-65 population. There are co-pays, deductibles and wellness features. Those are part of Medicare Advantage but not part of a traditional wrap plan.

Everyone faces co-pays and deductibles, and those are shared costs retirees understand. To use common vernacular, a wrap plan is the 1.0 version of retiree benefits and Medicare Advantage is 2.0.

How can employers use the Medicare Advantage Plan?

They can offer it as an alternative to curb their costs and provide features that will appeal to members. This plan is a little less confusing than others because members have just one card for all aspects of their coverage. There isn’t a Medicare card, a private insurance card, a pharmacy card — it’s all covered together, so care is better coordinated across the full spectrum.

What does a Medicare Advantage Plan cost an employer?

There is such a wide variety available, so it depends on what you choose. Medicare Advantage Plans are usually less expensive than wrap plans because they have managed care features, co-pays and deductibles. It is usually a less expensive option, but how much less depends on how you design the plan. You could go with a very rich Medicare Advantage Plan and have it cost the same as a traditional wrap plan.

What are the employer benefits to offering a Medicare Advantage Plan for retiree benefits?

One major benefit to employers is total cost because those plans are usually less expensive. The member experience is better because it’s not a fragmented plan — it’s all coordinated under one umbrella. Also, quality is another benefit because of the plan’s features, such as having all the care coordinated, and the focus on wellness and prevention.

You can think of it as cost saving — if you avoid a readmission, your costs are going to be lower — but it reflects better quality of care and a better member experience, as well. After just getting out of the hospital, the last thing anyone wants is to get readmitted. You can really only make that kind of impact on seniors’ care with a Medicare Advantage Plan because the responsibility is fractured on wrap and supplemental projects.

Joan Budden is chief marketing officer at Priority Health. Reach her at (616) 464-8703 or