IBM and Time Warner have joined a growing number of large employers shifting their retirees from company health plans and onto new PPACA-inspired private exchanges to cut costs.
IBM said the benefits of about 110,000 of its retirees would be administered by Extend Health, a private exchange run by Towers Watson & Co., beginning on Jan. 1. Time Warner's similar move goes into effect the same day.
Both companies said they would provide cash payments to their retirees that could be used to purchase insurance.
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IBM said its former workers will find more options than the business could provide through its own plan. Moreover, for most, coverage will come "at the same or lower cost" than they pay now.
GE was one of the first large U.S. employers to go this route, announcing it last year. Caterpillar Inc. and DuPont Co. also have moved Medicare-age retirees onto the Extend Health exchange.
More companies are expected to follow suit, according to the National Business Group on Health, which represents more than 365 large U.S. employers.
The group said its Aug. 28 survey of 108 companies showed that 7 percent are planning to shift retirees to private exchanges next year, while 40 percent are considering the change in benefits for 21015 or later.
Helen Darling, president and CEO of the group, said retiree medical benefit costs are "out of control."
Another survey last month by consultant Towers Watson found about 44 percent of companies plan to stop administering health plans for their former workers over the next two years.
The number of companies today offering retiree health plans is unclear, with the percentage ranging from 28 percent to 50 percent in various surveys.
Employers have been seeking ways to blunt the effects of rising health care costs for retired workers. The Patient Protection and Affordable Care Act appears to have opened the door to new way to do just that.
Aon, in its 2013 health care survey, noted that "many U.S. organizations have or are seriously considering sourcing post-65 retiree health care benefit coverage through the individual Medicare plan market. … More than 60 percent of employers are reassessing their long-term retiree health strategies due to the PPACA."
IBM says it acted after projections showed that costs under its current plan for Medicare-eligible retirees will triple by 2020 and that the increases would be paid by retirees through premiums and out-of-pocket costs.
Under the change, IBM will make annual contributions to health-retirement accounts. Retirees would use the money to buy Medicare Advantage or supplemental Medigap policies through a private Medicare exchange.
The IBM change affects prescription drug, dental and vision coverage as well as medical benefits.
IBM acknowledged that "some retirees may be skeptical" about the changes. But it said Extend Health will offer retirees benefits not now available under IBM's group plans. In some cases, IBM said, the cost for retirees may be lower.
Spokesman Douglas Shelton said IBM capped health subsidies to retirees in the 1990s, and so higher costs would mostly lead to higher premiums and out-of-pocket costs for retirees.
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