Most Employers Offering Retiree Health Plans Use Medicare Advantage

Most large employers used to offer retiree health plans, but in 2023, only a fifth of them did, according to a KFF brief. Among those that do, many have turned to Medicare Advantage to supply these supplemental benefits.

Over more than three decades, the share of large employers offering retiree health plans dropped from 66 percent to 21 percent. Of those offering retiree health plan benefits in 2023, 52 percent cover at least a portion of their retiree population through Medicare Advantage, compared to 26 percent in 2017.

Providing Medicare Advantage coverage for retirees is one way employers lower retiree health benefits costs. Other strategies include increasing member cost-sharing, transitioning to defined contributions, and capping liability.

“Under this approach, employers and unions contract with a Medicare Advantage private insurer to provide all Medicare-covered benefits as well as supplemental benefits for their Medicare-eligible retirees (and spouses),” the brief explained.

“The employer (or union) and/or private insurer (acting on behalf of an employer) receives a payment from the federal government (Medicare) and agrees to cover all Medicare-covered benefits, along with a package of supplemental benefits for retirees in their group.”

The largest firms that offer retiree health plans are more likely to channel benefits through Medicare Advantage. Over six in ten employers with 5,000 employees or more offered these benefits through Medicare Advantage, compared to a little less than three in ten in 2017 (29 percent).

The large firms with 200 workers or more that offered retiree benefits often did not provide any alternative to a Medicare Advantage plan. Nearly two-thirds of these companies only allowed employees to access their benefits through a Medicare Advantage plan (65 percent). This figure has increased significantly in a single year, from 44 percent of firms in 2022.

Cost is a key driver among employers who adopt this approach to retiree health plan benefits, with 27 percent of employers highlighting lower costs for retirees as the main reason and 13 percent saying that lowering costs for the firm was the primary reason for their decision. Another 17 percent underscored the flexibility that this approach offers enrollees. A smaller share noted that Medicare Advantage has better coverage options (11 percent).

The researchers noted that Medicare Advantage can have mixed results for retirees. Medicare Advantage may offer lower spending and comparable or higher quality benefits.

However, retirees may find that their in-network provider and hospital options are more restricted. Moreover, they are more likely to run up against prior authorizations, which can reduce access to care. If they choose not to accept the Medicare Advantage plan, retirees may relinquish their retiree benefits permanently.

“The rising number of Medicare-eligible retirees into Medicare Advantage plans also has implications for Medicare spending because Medicare pays more for enrollees in Medicare Advantage plans (including group plans) than it pays for similar people in traditional Medicare, which contributes to higher Medicare spending that ultimately affects the solvency of the Medicare Trust Fund and higher Medicare premiums paid by all beneficiaries, raising questions as to whether employers are limiting their liability for retiree health benefits at the expense of the Medicare program,” the researchers added.