Attention Retirees and Tax Payers

Today’s post has a dual purpose, for a somewhat small group of readers and at the same time a very large group. The small group consists of retirees having employer provided healthcare benefits. HR consultants have discovered another way to save employers money and subtly change the employees’ healthcare benefit plan. What I mean by “subtly” change the benefit plan is best depicted by another benefit plan change occurring since the 1980s in the pension plan arena. The change occurred when employers shifted from defined benefit retirement plans to defined contribution plans. At the time, employers were dealing with significant unfunded liabilities and unpredictable expenses which were impacting profitability. Adopting this new form of retirement benefit immediately addressed these issues.


So let’s fast forward to the present. Similar to defined benefit pension plans, retiree healthcare plans have similar challenges for employers. Those being large, unpredictable costs and continually growing liabilities. Like everything associated with healthcare, when promises were made by employers to employees related to healthcare insurance coverage, no one envisioned the out of control, multi-trillion dollar healthcare industry we now have.


Again, enter the HR consultants with employer solutions. Some of you will be familiar with Medicare Advantage plans. If for no other reason they’re constantly being advertised on television. Some of you may even be members in these plans because AARP, along with their business partner, UnitedHealthcare, has been an active advocate of such plans for a number of years. Let me pause and as background information let you know Advantage Plans are not new. They were part of the original Medicare legislation. However, a perfect storm of sorts has created a new environment for these plans.


Rather than bore you with rabbit-trail details. Let me hit the highlights and you can decide for yourself if more education is needed. First, remember when someone was promoting the adoption of Obama Care, and said you won’t have to change your doctor? Well, you may hear the same thing when your employer replaces their existing retiree health plan with a Medicare Advantage plan. You might experience the same result as those enrolling in Obama Care. You also might find your current hospital is not included in the new plan. In the health care community, the terminology you will hear describing where you can go and who your Doctor can be is “network.” And more importantly, the description, “out-of-network” will be used to describe those providers no longer covered by the new insurance plan. An old adage, “if it sounds to good to be true, in all likelihood it probably is,” might be applicable at this point.

Advantage Plans have undergone significant transformation since the 1980s because of attempts by the government to gain more “control” over Medicare costs. Demonstration projects attempting to encourage improved quality, reduce government expenditures, add additional benefits and promote innovations in health delivery have resulted in the hyper-growth of Advantage Plans.


Not surprisingly with billions of dollars at stake, insurers have rushed to the “Medicare Payment Trough.” With the explosion of Medicare Advantage Plans it’s no surprise enrollments have increased accordingly. Here, however, is the interesting part of the story. Since 2008, enrollment in employer-sponsored, Medicare Advantage Plans has gone from 1.6 million to over 5 million. Why, you might ask? Let’s look at a recent situation that highlights the good, the bad and the ugly.


As promised, here’s something for you taxpayers reading this. As many similar things, Medicare Advantage is not new. In fact, corporate America has been making the changes in retiree healthcare benefits for over a decade. What raised the attention level most recently, however, is New York City’s decision to shift more than 200,000 retirees to an Advantage plan with proclaimed savings of $600 million/year. How some skeptics have asked? Improved efficiencies? Better clinical control?  Not unexpectedly, some folks within the New York City infrastructure have taken issue with the conversion and have sued to delay implementation. Decisions related to the lawsuit are in process.


Here are some interesting facts. In the last decade, enrollment in Medicare Advantage Plans has more than doubled. Medicare spending was $321 higher in 2019 and growing faster per person for enrollees in Medicare Advantage vs. traditional Medicare. In total, this resulted in $7 billion in additional spending. (Source Kaiser Health News) Medicare program solvency continues to be a major issue. As part of the Obama Care Act passage a little publicized tax, The Net Investment Income Tax (NIIT) of 3.8%, was included. This tax was created to help fund Medicare expansion. So beware Medicare has been a financial drain on the government budget for decades, it continues to be a financial drain, and there will continue to be “taxes” levied to cover the drain until something is done about healthcare in this country.


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