First Step: Private Medicare Exchanges

Private health insurance exchanges may get the majority of the headlines thanks to the Affordable Care Act, but it is Medicare exchanges that have caught the attention of the nation’s largest employers.

Like private insurance exchanges, Medicare exchanges allow shoppers—in this case, mostly retirees—to take their money and pick among Medicare Advantage plans and supplemental Medicare policies on an exchange. Instead of getting those plans directly paid for by their employers, in many cases employers simply give money directly to their employees and let them pick what they want. Multinational companies like  AT&T, GE, IBM, and Time Warner have already moved retirees to private Medicare exchanges, with anticipated corporate savings totaling in the hundreds of millions of dollars per company.

And they aren’t alone. Health benefit executives from Pitney Bowes and Alcoa said private Medicare exchanges continue to draw the greatest interest from Fortune 500 employers, versus public or private exchanges for active workers under the age of 65.

For major employers, it makes sense to move costly retirees off legacy, indemnity insurance plan designs, Mary Bradley of Pitney Bowes and Scott Kovaloski of Alcoa said  at America’s Health Insurance Plans conference on Wednesday. Moreover, employers are concerned that private exchanges for active workers aren’t ready for prime time.  Private Medicare exchanges have been around for awhile—many started shortly after the passage of the Medicare Modernization Act of 2003—and are seen as financially tested.  Conversely, most private exchanges for active workers are less than two years old.

Of course, moving retirees to private Medicare exchanges still present difficult hurdles and risks for Fortune 500 employers.  For industries with high levels of unionization, many retiree benefits are locked in under collective bargaining agreements.  For other companies, the risk of being seen as “dumping” retirees has prevented a faster migration to private Medicare exchanges.

Regardless of the operational hurdles or risks, Bradley and Kovaloski said private Medicare exchanges are the first step for major employers and will act as a bell weather on whether companies shift active workers into private or public health insurance exchanges.