Essay Sample on Retiree Medical and Prescription Coverage

Introduction

In the United States, retiree medical and prescription coverage is mostly a responsibility of the former employers and the national health insurance program. Many employers solely bear the responsibility of paying health insurance for their retired employees under the age of 65. Once a retiree attains the age of 65, they become eligible for Medicare, which then assumes the primary responsibility of paying for their coverage. The former employers then only contribute to supplement the benefits of the retirees eligible for Medicare. However, the prevailing trends in retiree health insurance show that retiree medical and prescription coverage are increasingly becoming dependent on beneficiary cost-sharing.

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Former Employer-Sponsored Health and Prescription Coverage

The likelihood of a retiree enjoying health and prescription coverage sponsored by a former employer increases with the size of their organization. People who retired from large firms are more likely to get health cover than those from smaller firms. According to the National Survey of Employer-Sponsored Health Plans (2004), as cited in Mercer (2015), retirees under the age of 65 who worked in organizations with at least 20,000 employees are twice more likely to be given coverage than retirees from firms with less than 1,000 employees. The larger firms are almost three times more likely to offer coverage for retirees over 65 of age than the smaller ones. But irrespective of the size of the firm, the percentage of firms that offer coverage for retirees has been falling for the last three decades. Claxton et al. (2006) stated that the Employer Health Benefits (2006) Annual Survey, found that the percentage of medium and large-sized firms providing retiree coverage fell from 66 percent to 33 percent between 1985 and 2005. Despite the steady decline in coverage over the last decade, the numbers have leveled off in the recent past.

Coverage for Retirees Younger than 65

Retirees who do not qualify for Medicare because of their ages have historically benefited from employer-sponsored retirement security plans. In 2012, former employers offered about 45 percent of retirees below the age of 65 health coverage. The proportion represented a slight decrease from 2009 when firms provided coverage for 50% of early retirees (McArdle et al., 2014). The Affordable Care Act (ACA) revolutionized coverage for pre-65 retirees by introducing subsidies, which, coupled with the availability of insurance reforms, have made the insurance marketplaces more affordable and reliable. Although it costs significantly more to cover pre-65 retirees than the Medicare-eligible retirees, the former has been more likely to be offered health benefits by their former employers. McArdle et al. (2014) stated that about 90% of all firms offering health benefits for retirees in 2013 covered pre-65 retirees. In the same year, 67 percent of the organizations offering coverage for retirees covered pre-65 retirees.

The average cost of health benefit per retiree is almost twice as high for retirees below the age of 65 as it is for those covered by Medicare (Levy et al., 2016). Large firms typically agree with insurance providers to avail their provider network and manage the payment of claims and benefits nationally. Some employers put their pre-65 retirees in the same risk pool as their active workers while others put them in a separate insurance plan. However, according to Levy et al. (2016), employers are increasingly putting their retirees on retiree-only coverage because ACA recently exempted it from some of its more expensive requirements.

Employers that put their pre-65 retirees in the same risk plan as active workers offer more healthy options including an HMO, a PPO, and sometimes traditional indemnity coverage (Levy et al., 2016). Such a plan is more generous and comprehensive than the Medicare coverage. It mostly has a limit on out-of-pocket expenditure and includes a prescription drug plan without coverage gap. Employers often contract a distinct pharmaceutical firm to offer coverage for prescription drugs. However, some insurance providers offering health benefits have their own arrangements for providing prescription drugs.

A few large firms use account-based plans for their retiree health coverage. For example, an employer, through this approach may choose to credit the health reimbursement accounts of its active employees with fixed amounts annually from a given age until retirement to help them pay premium contributions for health coverage upon retirement. Some employers, however, offer their active employees high-deductible health coverage, accumulating funds into their eligible health savings accounts to go into their health expenses when they retire (Noyelle, 2019). This arrangement is possible for both employers that sponsor health plans for retirees and those that do not. Notably, retirees who have not attained the age of 65 may not use funds in their health savings accounts to pay insurance premiums as they are available for use by Medicare-eligible retirees only. However, even the eligible retirees cannot use their health savings account funds to pay for Medicare supplemental insurance plans.

Coverage for Retirees Eligible for Medicare.

Once retirees reach age 65, Medicare takes the greatest responsibility for their medical and prescription cover. The coverage is often supplemented through employer-sponsored benefits. In 2010, about 31 percent of all beneficiaries of Medicare had employer-sponsored supplemental coverage (Noyelle, 2019). Almost 4 percent of all the beneficiaries had employer coverage as active workers, meaning that their former firms were the primary payers (Noyelle, 2019). Generally, Medicare beneficiaries that have employer-sponsored insurance benefits mostly have higher incomes than other Medicare beneficiaries. Also, most of them are white, and in comparatively better health than Blacks and Hispanics.

Similarly, the rate of retiree health insurance coverage differs from one geographical region to another. The beneficiaries of Medicare from the New England region are more likely to be offered retiree coverage than those from West North Central and South Atlantic regions. According to McArdle et al. (2014), the proportion of Medicare beneficiaries that have retiree health coverage is almost 40 percent in the New England region and about 30 percent in the West North Central and South Atlantic regions.

Moreover, the retiree health plans sponsored by employers take care of a share of Medicare's cost-sharing requirements and paying for services that Medicare does not cover such as eyeglasses. Hence it helps to abate the financial exposure of the beneficiaries. McArdle et al. (2014) calculated that a 65 years old retired couple with Medicare will need an estimated $220,000 throughout their retirement to fill financial gaps in health coverage if they do not have employer-sponsored retiree supplemental coverage. The amount does not include what they expend on long-term care, dental services, and over-the-counter medications.

Finally, it is important to note that while employers bear great responsibility in the provision of medical and prescription coverage for retirees, employer-sponsored insurance for both current employees and retirees is arguably voluntary in the United States. There is no legal requirement for employers to bear the burden of providing health insurance for workers. The ACA requires that employers with at least 50 full-time or part-time workers provide health cover for 95 percent of their staff or remit an equivalent amount to the Internal Revenue Service as a penalty (McArdle et al., 2014). Moreover, the law does not provide many protections to keep employers from eliminating or cutting the benefits. Employers that have not entered contractual agreements or made promises to employees to provide the benefits are not obliged to maintain the responsibility. For this reason, employers that offer employer-sponsored retiree health insurance are increasingly shifting the weight of this responsibility to retirees by increasing deductibles, copayments, and premiums. Besides, health benefits or retirees are vulnerable when companies face bankruptcy. There is no policy offering protections for the health benefits of retirees of companies in bankruptcy.

Conclusion

Large firms take the responsibility to self-insure the coverage of pre-65 retirees more readily than small firms. For the retiree eligible for Medicare, the employer-sponsored benefits help to fill significant gaps in health coverage. It is more costly to provide retiree coverage for retirees below the age of 65 than to offer supplemental health insurance to retirees already covered by Medicare because the former is primary while the latter is secondary. However, the cost-sharing requirements of Medicare are relatively high, and it does not set any limits on out-of-pocket costs for some covered health services like the usual employer plans. Medicare only began to cover prescription drugs a few years ago. However, even the existing Medicare drug benefit still has a coverage gaps that need to be phased down. Lastly, the future of retiree coverage is uncertain considering that employer-sponsored health insurance is not a mandatory requirement, and individuals losing health coverage have little protection.

References

Claxton, G., Gil, I., Finder, B., DiJulio, B., Hawkins, S., Pickreign, J., & Gabel, J. (2006). Employer health benefits: 2006 Annual survey. Kaiser Family Foundation and Health Research and Educational Trust.

Levy, H., Buchmueller, T., & Nikpay, S. (2016). Health reform and health insurance coverage of early retirees. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2878999

McArdle, F., Neuman, T., & Huang, J. (2014, April 10). Retiree health benefits at the crossroads - Overview of health benefits for pre-65 and Medicare-eligible retirees. KFF. https://www.kff.org/report-section/retiree-health-benefits-at-the-crossroads-overview-of-health-benefits-for-pre-65-and-medicare-eligible-retirees/

Mercer, S. (2015). National Survey of Employer-Sponsored Health Plans 2014.

Noyelle, T. J. (2019). Finance: The case of a large insurance firm. Beyond Industrial Dualism, 78-96. https://doi.org/10.4324/9780429041532-5