Medicare Advantage coverage rising for those with retiree health benefits

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As Medicare Advantage continues to grow, it’s expected to surpass Original Medicare in enrollment numbers for 2023 as more insurers enter the market, with an increasing number of employer- and union-sponsored retiree health plans offering Medicare-eligible coverage, according to new findings from the Kaiser Family Foundation.

Just 13% of large employers currently offer retiree health benefits to Medicare-age retirees, according to the KFF Employer Health Benefit Survey. Concerns about costs associated with retiree health benefits have led employers and unions to implement changes to limit their financial liability while continuing to offer retiree health benefits, including establishing financial caps on their liability, shifting toward defined contribution approaches, increasing retirees’ premium contribution, and more recently, by offering their Medicare-eligible retirees coverage through Medicare Advantage plans.

Based on the survey results, half of large employers offering retiree health benefits to Medicare-age retirees offer coverage to at least some retirees through a contract with a Medicare Advantage plan, nearly double the share in 2017.

About 44% of large employers that offer Medicare Advantage coverage to their retirees do not give retirees a choice in coverage options.

And among larger employers with 1,000 or more workers that offer retiree health benefits through a Medicare Advantage plan, the most commonly cited reason they elected this option was the lower cost.

WHAT’S THE IMPACT

The share of Medicare beneficiaries offered retiree health benefits has been eroding over time. For people with Medicare, employer or union-sponsored retiree health benefits can help to make Medicare more affordable by helping to cover deductibles and cost sharing and by providing supplemental benefits that are not covered by traditional Medicare. 

Until fairly recently, found KFF, employer and union-sponsored retiree health coverage was typically designed to coordinate or wrap around traditional Medicare. More recently, employers with retiree health obligations have turned to Medicare Advantage, an approach that could have implications for retirees’ core Medicare benefits – particularly if the only option for retirees is a Medicare Advantage plan, which may impose restrictions such as more limited provider networks and prior authorization requirements.

Among firms with 5,000 or more workers offering retiree benefits, 60% offer retiree health benefits through a Medicare Advantage plan in 2022, a share that has doubled over the same time period, the data showed.

Among large firms (200 or more workers) offering retiree benefits through a contract with a Medicare Advantage plan, more than 4 in 10 (44%) provide at least some retirees no choice but to receive their retiree health benefits through a Medicare Advantage plan. Retirees in firms that offer Medicare Advantage exclusively are unable to choose traditional Medicare for their core Medicare benefits, rather than a Medicare Advantage plan, unless they are willing to give up their retiree health benefits.

Among firms with 1,000 or more workers offering retiree benefits through a contract with a Medicare Advantage plan, the primary reason the firm elected this option is the lower cost. Nearly a quarter (23%) said they don’t know the reason, while 14% said it provides flexibility for enrollees, 8% said it has better coverage options, 7% said it’s administratively simpler, and 5% selected it for another reason.

More than four in ten large employers (200 or more workers) offering retiree benefits through Medicare Advantage said they don’t know why they selected Medicare Advantage for their retiree benefits. This is primarily due to smaller firms – those with 200-999 workers – who disproportionately don’t know why their firms provide their retiree health benefits through a Medicare Advantage plan (49%) compared to those with 1,000 or more workers (23%).

THE LARGER TREND

The shift to Medicare Advantage has implications for retirees that extend beyond supplemental benefits, KFF found. This approach has the potential to restrict retirees’ access to doctors and hospitals, depending on the plan’s provider network, and subject retirees to cost management tools, such as prior authorization, that may limit access to Medicare-covered services. 

Limited provider networks were a major area of concern when New York City recently tried to move its city worker retirees into a Medicare Advantage plan to save an estimated $600 million per year in healthcare costs – and may explain why the implementation of this plan is on hold due to litigation and the withdraw of the insurer who was set to run the plan. 

If retirees are dissatisfied with their network, their only option may be to give up retiree benefits altogether, although they would retain Medicare, and have the option to choose traditional Medicare – potentially with a Medigap supplement – or a Medicare Advantage plan, including zero-premium plans.

The rising number of Medicare-eligible retirees into Medicare Advantage plans raises questions about the impact on Medicare spending, particularly because Medicare pays more for enrollees in Medicare Advantage plans, including in group plans, than for traditional Medicare, on average, KFF found. 

Further, the survey found, the rising number of Medicare Advantage enrollees in group plans highlights the lack of transparency about these plans, including information about which employers are offering Medicare Advantage, and makes it difficult to assess the extent to which Medicare overpayments may be offsetting employers’ liability for retiree health coverage, the scope of coverage under group plans, such as provider networks for Medicare-covered and other benefits, the scope of extra benefits, and premium and cost-sharing requirements.
 

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