Retirees Have Their Very own Health Exchanges

Tina Maldonado has seen the overwhelmed look on the faces of seniors when their former employer suddenly sends them from the company retiree health plan to a Medicare exchange, a private health insurance marketplace, to shop for their own coverage under Medicare.

"There's this feeling of, 'Oh my goodness, how am I going to do this?'" says Maldonado, the retiree experience leader for the Aon Hewitt Navigators exchange. "It can be frightening."

But Maldonado says fright usually turns to delight once they discover the wide range of plan choices and money-saving opportunities that were never available under their employer's group plan, as well as the one-on-one assistance to fine-tune their ideal mix of cost and coverage.

"Then it starts to feel a whole lot better," she says.

What are private Medicare exchanges? How do they differ from the new Obamacare state health exchanges? And how can you make the most of them? Here's the crash course.

A Chrysler model, of sorts

Typically, retiree exchanges offer a selection of: Medicare Advantage plans (the more comprehensive Medicare plans offered by private insurers); Part D prescription drug coverage; and Medicare supplements, also known as Medigap, the policies that beef up traditional Medicare. Many are even open to the general public.

A brief history lesson is in order here. Back in the 1990s, large employers reacted to double-digit annual cost increases in their group health insurance plans by capping benefits for their retirees.

"Over time, former employees hit the cap, and then it was on them to make up the growing difference," says Gerry Smolka, senior strategic policy adviser at AARP's Public Policy Institute.

In 2004, Extend Health, the first private Medicare exchange, changed that lose-lose scenario to a win-win model for Chrysler Corp. by taking its retirees off the automaker's costly group plan and into the individual Medicare market, where hundreds of plans compete. Retirees found they could suddenly personalize their coverage and save money.

"It's become an upgrade for seniors," says Extend Health co-founder and CEO Bryce Williams, now managing director of exchange solutions for Towers Watson, which acquired his company in 2012. "Our average rate increase across all Medicare plans has been only 2.8% per year over the last three years. Since many of our client companies are cost-of-living-adjusting their retiree contribution amount by 3% per year, in essence the deal is getting better for retirees each year."

Confusion with Obamacare exchanges

IBM, Time Warner and more than 300 other major corporations have gladly outsourced their retiree plan administration to Towers Watson's OneExchange. Williams says longtime employees are rewarded with better coverage for their money.

"We have 97% retiree satisfaction with this program," he says.

Bruce Richards, partner and chief actuary at Mercer Health and Benefits, says his company's myCustomHealth Medicare exchange has benefited greatly from the "mass hysteria" around health insurance exchanges that accompanied the opening of the Obamacare state health marketplaces.

"Federal health reform actually jump-started the whole (private) exchange business," he says. "Would we have grown as rapidly without it? The answer is probably, 'Heck no!'"

Unfortunately, some retirees were under the mistaken impression that Medicare open enrollment somehow involves the Obamacare public exchanges.

"It doesn't," says Smolka. "(Obamacare) exchanges are geared to those under 65 who do not have employer coverage or who need coverage. There's nothing for retirees on the public exchanges."

Private Medicare exchanges serve only seniors and the pre-65, Medicare-eligible disabled. They're run by private brokers such as Aon Hewitt, Mercer and Towers Watson, which assume the administrative duties in exchange for the broker's commission that is built into the price of each insurance plan. In Medicare, there is no competition on price or plan features.

"This is the ideal exchange because the products are standardized and the rates are indifferent to who sells it," says Richards.

Benefits of Medicare exchanges

Medicare exchanges say they offer four main upgrades to employer group retiree plans:

Plan choice: Where an employer group plan might offer chocolate or vanilla, exchanges typically offer hundreds of plans.
Customer service that's supposed to be unbiased: Exchange advisers have no financial stake in the plans you choose. Their sole goal is to help you identify the best plan and price for you, say Maldonado and Williams.
Potentially lower costs compared to employer coverage: "In the Medicare Advantage market, there are many plans with $0 premiums," says Richards. "You get a win out of that for any retiree, relative to their current group plan."
Benefit reliability: By switching to an exchange, companies are better able to budget for their retiree plans without the specter of year-to-year cost increases hanging over the boardroom. That can mean less anxiety for retirees.

Maldonado says the private Medicare exchange advisers, such as those on her Aon Hewitt team, lend a personal touch that's often missing with group plans and Medicare customer support.

"We build relationships with our retirees, and a lot of them call us every year," she says. "You have someone you can talk to who will ask questions and help you think about something you've maybe never had to think about, such as what you really want in a plan. That is unique."

AARP's Smolka says retirees who desire a second opinion can always contact their State Health Insurance Assistance Program, or SHIP, a free, independent, federally funded counseling service for Medicare beneficiaries and their families, through state departments of insurance or agencies on aging.

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