Current Trends in Retiree Health Coverage Expected to Continue Under a Trump Administration

The landscape for retiree healthcare is not expected to change significantly under a first Trump term. However, several Republican proposals, if enacted, could incent group members to shift to the individual market over time.

Background – According to the September 2016 Kaiser Health Foundation (KFF) – Health Research & Educational Trust (HRET) Health Benefits Survey, 24% of large employers (200 employees or more) that offer health benefits to their employees still offer retiree coverage Of the firms offering retiree coverage, 92% offer retiree coverage to early retirees and 72% to Medicare-eligible retirees. Over the past several decades, there has been a slow decline in employer coverage of retiree health benefits – down from 34% in 2006 and 40% in 1999. The 2016 level of 24% is similar to levels in recent years. Consistent with recent trends, employers are expected to continue to gradually reduce retiree coverage, but most employers that offer retiree coverage are expected to continue to offer this coverage in the next several years.

Impact of the Affordable Care Act (ACA) on Employer and Retiree Coverage – Use of the ACA Marketplace by employers has been low. The 2016 KFF-HRET Survey found only 17% of large firms offering retiree health coverage are considering shifting to Marketplaces that offer subsidies, which was lower than the percentage in 2015 (26%). So if the Marketplaces are repealed or substantially modified, the impact on employers should be small.

If the employer mandate is repealed, the penalties and much administrative burden on employers will be eliminated. This change would provide more flexibility on how retiree benefits are offered and could result in delaying any reduction in retiree offerings.

If the 40% employer Cadillac plan excise tax is repealed, more employers may retain their current retiree coverage and not follow in the footsteps of employers that have already acted to mitigate the Cadillac plan provision, e.g., switching to a lower cost plan, increasing cost sharing, selecting plans with a smaller network, or moving benefit options to account based plans.   However, if an alternative price proposal to enact a cap on the annual tax exclusion for employer-sponsored benefits is enacted (e.g., $8,000 individual and $20,000 family), then employers may modify their plan designs and offerings.

Impact on Medicare Advantage (MA) Plans – MA Employer Group Waiver Plans (EGWPs) should continue to grow in markets that have not been fully penetrated over the next several years.

Defined Contribution Plans – In recent years, some employers have moved towards defined contribution plans, sending retirees to the individual market to choose a plan rather than remain in the group market. This trend has been smaller than predicted. In 2016, only 6% of large firms (200 or more workers) offering retiree health benefits report offering benefits through a private exchange, similar to the percentages in 2015. According to the KFF survey, an additional 21% of firms were considering a defined contribution approach. Assuming the individual market remains sound, some employers may move to a defined contribution in the future, thus eroding the employer group market over time. Some Republican proposals could spur this trend. For example, Tom Price’s 2015 repeal and replace bill (H.R. 2300) included a proposal that would cap the tax exclusion for employer provided benefits and permit employers to contribute to an employee or retiree plan in the individual market. If enacted, the proposal could make shopping in private exchanges more attractive and/or cause employees to leave the employer group plan because there would be more plan choices available.

Account Based Plans (Health Savings Accounts) – Many employers offer an account based plan, such as a Health Savings Account (HSA) or a Health Reimbursement Account, as part of their group coverage. A Trump administration is expected to pass legislation and regulations to allow more flexibility in these plans, and they can be expected to grow. For example, Tom Price’s 2015 legislation included a provision that would provide a one-time $1,000 tax credit for HSA contributions, increase HSA contribution limits to the maximum individual retirement account limit, broaden coverage of drugs before the deductible, and provide credit for over-the-counter (OTC) medications and fitness/nutrition services. Under the Price proposal, Part A Medicare beneficiaries would be allowed to contribute to HSAs while Medicare beneficiaries with Parts A and B could contribute to an Medicare Medical Savings Account (MSA) plan. While this change could make the MSA more successful than in the past, it would not address the small percentage of beneficiaries who understand the product and would be willing to move from a product that provides first-dollar coverage.



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