It's no accident that health care reform relies on a public health care exchange to save uninsured individuals and small businesses money on health care coverage.
But before 2014 (or 2017 in the case of large businesses) arrives, employers have private individual exchanges to help their retirees attain less costly and more comprehensive coverage.
One such retiree, George W. Farnall, 71, of Middlesex, N.C., had hoped for a worry-free retirement, but was winded by high premiums, deductibles and out-of-pocket costs until his former employer, Caterpillar, Inc., rerouted retiree health care coverage to a Medicare exchange-based system on Jan. 1.
"It's something that I dreamed about when I was a young man, that whenever I got to be retirement age, I wouldn't have to worry about where the money was going to come from for health care costs," says the former assembly technician at Caterpillar's Clayton, N.C. plant.
"I thought I'd died and gone to heaven [when I got on the new system]. It's working so well, maybe I'll get caught up on the other bills [I accrued] from the previous system this year," he adds.
Caterpillar is one of many Fortune 500 clients of Extend Health, Inc., the country's largest private Medicare insurance exchange.
Founded in 2004, Extend Health "operates a private Medicare exchange that helps employers or firms provide insurance choices to their retirees to buy their own individual plans using funds in a health reimbursement arrangement," says Bryce Williams, CEO of Extend Health.
Companies like Extend Health are transitioning employers from the typical group insurance model to a more financially predictable exchange-based model, with lucrative results.
"We believe we're saving our clients over $500 million each year while providing as good or better benefits for retirees. The group model is the evil here; it is a wildly inefficient way to deliver what is available via guaranteed issued coverage in the individual market," advocates Williams.
Most employers, including Caterpillar, provide subsidized health care (which rolls over year to year) to cover premiums, what the Medicare plan does not and out-of-pocket costs for retirees.
Caterpillar puts money in an account yearly, which covers the Medicare deductible and the remainder that Medicare covers, says Farnall. When the premium is withdrawn from his bank account, his carrier notifies Extend Health and they electronically put money back into his checking account - it's very convenient, he says.
But what Farnall appreciates most about the new system is that "I know exactly how much it's going to cost me each month," he explains - an advantage both he and Caterpillar can appreciate.
Another employer on the exchange-based system, Ford, saves $85 million each year, which is, in part, helping turn the company around. Concerning FAS 106, the exchange model can help affix what future exposure will be for companies.
In 2006, there were $850 million FAS savings to employers' balance sheets. These numbers help explain why Extend Health calculates employer satisfaction at 94.5%.
How it works
The average retiree is better off as well when they choose their own plan through an exchange by saving $500 total out-of-pocket per year, Extend Health estimates. Individuals spend 30% less dollars on average than they would normally pay.
Retiree satisfaction is also high at 96% because they get to pick their own plan, revolving their coverage around their doctor and hospital's network and prescription drug coverage.
Part of that retiree satisfaction germinates from the plethora of choices generated for each retiree based on their individual needs.
The exchange covers all Medicare advantage plans, Med-supp plans and Part D plans. So far, Extend Health has served more than 250,000 Medicare-eligible retirees who have selected over 2,600 different plan variations from over 55 carriers.
The price competition is fostered through the exchanges, and choice is driving costs down.
"Having mass customization or mass personalization generates huge value and tremendous satisfaction for the retiree," says Williams.
"Not only is this a hard field to understand, but everybody is different, everybody has a different health history, background and needs. So having a confident analysis of what's out there to meet your needs and helping you match up those needs with the right products or the right coverage is really an important service," Dick A. Gephardt, president and CEO of Gephardt Group Government Affairs, explains.
To match retirees with the correct product, Extend Health offers a Web portal in addition to a call center with 900 benefit advisers. These advisers function in pods, where a group of benefit advisers specializes in a particular company's benefits.
For example, Caterpillar has 100 benefit advisers in their call center, and they have become experts in Caterpillar plans. Farnall chose to speak over the phone with a benefit adviser, or "a real, live person," as he puts it.
"[The benefit adviser] told us what would be best for us when he put in our personal information [into the Extend Health exchange Web portal]," he says. Farnall had numerous options and was able to find one with no copays and no deductible. So far this year, he hasn't had to pay anything for his prescription drugs.
Farnall recalls that before the exchange system, he saw his retiree health care fund fast depleting.
"With everything [Social Security, health care costs, etc.] going up, except your retirement funds, you're kind of between a rock and a hard place," he says.
This sentiment speaks to retiree funds in general, especially voluntary employee beneficiary associations. If an employer doles out fixed dollars into a fund or account, this exchange model can help double the life of a VEBA.
How to extend the life of a VEBA
"What VEBAs need and want is the highest quality of health care for the least amount of dollars. If the VEBA is able to use the exchanges to allow the VEBA and their members to get better value for less money, it extends the financial life of the VEBA," says Gephardt, who is also on the board of Extend Health.
He adds that "VEBAs are becoming popular because so many companies are in economic trouble they can't keep the future liabilities for health care for their retirees on their books - it's killing their balance sheet, yet the unions don't want to lose the benefits. At the end of the day, the viability of VEBAs will depend on whether it worked, if there is enough money there."
That's why, according to Gephardt, VEBAs in the steel industry are just starting to look at exchanges for their retirees.
"By its very nature, actuarially, when you fix the assets, you want to try to extend either the buying power of those dollars or the life of those dollars, and preferably both. In our minds, any VEBA trustee should absolutely leverage a Medicare exchange immediately to get 20% to 30% more buying power, 20% to 30% more lift out of the dollars that have been contributed, because [the funds are] fixed, and they can potentially double the life of a VEBA in terms of how long those assets can cover the retiree's health care," Williams explains.
In 2014, health insurers will need to cover everyone. At that time, employers can use a VEBA in an exchange to drive a better bargain for VEBAs to last longer.
Once the Patient Protection and Affordable Care Act turns everyone into a guaranteed underwritten individual, employers can move Medicare employees into the individual market.
Starting that year, VEBAs can use private exchanges for pre-Medicare retirees, just as Extend Health is doing for Medicare-eligible retirees. In fact, Extend Health is currently working on a pre-65 retiree exchange.
Another aspect of reform, when the retiree drug subsidy becomes taxable to the plan sponsor beginning in 2013, it is "absolutely causing all public and private sector employers to want to exit providing group Part D and group Medicare coverage for their retirees," posits Williams.
According to a Towers Watson report, almost every employer is going to leave group coverage because of the end of the retiree drug subsidy in PPACA. They will move toward an exchange-based model in the next two years.
PPACA also will encourage retirees themselves to look into an exchange. By eliminating the donut hole for seniors in PPACA, Part D exposure will be reduced over the next few years, which will increase interest in using an exchange for Medicare coverage. The individual Part D coverage is becoming a better deal for post-65 retirees.
The exchange has taught Farnall how to be a better patient and consumer, a lesson that could be extended to other retirees in the donut hole.
Even though he only goes to the doctor when he needs to, "I don't have that stress of not going because I don't have the money," explains Farnall. "With the plan we have now, it makes seeking medical care a lot easier," he continues.
"I've always been intrigued by how we can get more relevant, intelligent, factual material to individual people so they can be better informed shoppers or receivers of health care coverage," says Gephardt.
Not only has he become a better consumer, Farnall's appreciation of Caterpillar has grown.
Farnall boasts that "Caterpillar has always been a people-oriented employer: If their workers have a problem, they listen," perhaps evidenced by the switch in their retiree health plan.
"Caterpillar is doing their part in getting us the best health care possible at the best rates. Caterpillar is making retirement less stressful, like it should be."
Correction: In the article, "Private exchanges have potential to breathe new life into VEBAs," (EBN August) the statement, "Another aspect of reform, the elimination of the Retiree Drug Subsidy in 2013, is ‘absolutely causing all public and private sector employers to want to exit providing group Part D and group Medicare coverage for their retirees,’ posits Williams,” should have referred to the retiree drug subsidy becoming taxable in 2013, not eliminated.
