In a time during which uncertainty prevails – instead of assurances that a universe of options will remain stable throughout a multi-year period – it’s generally best to plan for one of the likely possibilities but remain flexible and ready to change when more reliable tenets emerge.
Or another way to put it: Never forget Plan B. Or even Plan C.
That’s the advice of Stephen Parahus, senior consulting actuary with Towers Watson, when contemplating a rational course of action for the typical corporate benefits planner in mid-2011 – particularly when it relates to early-retiree health benefits.
Considering the many possibilities that may intervene between now and 2014 – when the proposed smorgasbord of health-insurance options is currently scheduled to go live with the advent of federally mandated but yet-to-be-developed state-by-state health-insurance exchanges – Parahus suggests it may be best to keep your powder dry.
And the reason relates directly to basic human nature, at least when it comes to health insurance: Go with the most secure option.
“If you’re 57 and ready to retire – but you have no access to affordable health coverage – you don’t retire,” Parahus said. “And employers know that.”
Workforce management is one of the most delicate pursuits of human-resources specialists across the United States. And it’s one of the most difficult areas of endeavor when one is realistically faced with an unknown future.
“Employers who are really looking to do workforce management – either refresh their workforce or do things to provide incentives to retire – are very well aware that access to affordable health care coverage before Medicare eligibility is golden as a workforce-management tool,” said Parahus.
“If an employee says they can’t retire at age 60 because they can’t afford retiree medical coverage – because their employer doesn’t provide it – well, the employer may be leaning back in a chair with arms folded, saying, ‘We’ve solved that problem: We don’t have a retiree medical plan, so we don’t have retiree medical expenses.’ Like hell they don’t.
“That person who doesn’t retire continues to be in the ‘active’ health plan. The claims are just as high or low or whatever as they would’ve been if the person had retired. And they’re still on the employer’s payroll – so they’re essentially ‘retired at work.’ They’re there because they need the health coverage – they’re not there because they are an engaged contributor.”
Broadly speaking, the problem is rooted in the fact that despite current federal law, many are skeptical that health care reform will continue to be implemented precisely as outlined. Reform, as delineated in existing law, could be entirely repealed.
Perhaps more likely is that it will continue to be modified, morphing its way through implementation to a form that no one is intellectually equipped to accurately predict.
“I think there’s going to be a lot of changes,” Parahus said. “A lot of horse-trading is going to be done. So I think there’s going to be something in 2014 – I don’t know what it’s going to look like, though.”
Among the features of health care reform as it first became law in 2010 is something called the Early Retiree Reinsurance Program, or ERRP.
Funded to a tune of $5 billion to help cover early retirees through full health care-reform implementation in 2014, ERRP has become something of a symbol of the underlying flaws in the entire health care-reform legislation.
“When I talk to people about ERRP, it honestly doesn’t matter where they are on the political spectrum,” said Parahus. “The universal consensus is that ERRP was a disastrous mistake. It’s ‘cash-for-clunkers’ for retirees. It’s an attractive plan – with extremely limited funding.”
The problem isn’t that $5 billion of funding is basically nothing – obviously, any number in the billions of dollars is a considerable outlay. But $5 billion, in this context, can hardly begin to help deliver promised coverage for early retirees over a 4-year period extending all the way from 2010 through 2014.
Yet beyond the politics – and the outside possibility that the ERRP fund could be augmented with additional appropriations – the original purpose of the fund seems to have been at least somewhat misinformed from the very start.
“It was designed to encourage employers who did offer and subsidize the cost of health benefits for early retirees to just keep their plans, and not terminate the plans for the next three years or so until the insurance exchanges went live and could create a new ‘marketplace’ solution,” Parahus said. “At this point, I think early-retiree medical plans have pretty much stayed the course.
“And I think employers are very hopeful there will be a marketplace solution for real in 2014.”
While uncertainty regarding the eventual shape of health care reform still prevails, companies continue to scratch their heads as to what to do about early-retiree health benefits.
“You need to develop a plan that responds to the way we’re told the world is going to change, and what we think all the associated implications are going to be,” said Parahus. “But you also have to have a fully formed Plan B – because Plan A might not happen, or it may not happen the way we think.”
Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.
Your access to unlimited BenefitsPRO content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Breaking benefits news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.