Rising Employer Health Care Costs May Boost Self-Insured Plans

Increasing health care costs are driving U.S. employers to search for alternative methods to provide health care benefits to retirees, new research shows. The WTW Retirement Medical survey found 50% of employers are concerned about rising costs and are targeting private insurance marketplaces to substitute for group plans.  

WTW survey data shows 22% of employers have either stopped offering workers a traditional group medical plan to early retirees or are considering a replacement. Among employers that have terminated a group plan, 75% are replacing it with access to and financial support for individual insurance through a private marketplace plan, according to the report.

“Employers are rightfully concerned about this growing burden and are studying all options, including private marketplaces,” says Lindsay Hunter, senior director for Health & Benefits at WTW, in a press release. “For now, they remain committed to offering retiree healthcare benefits and a positive retiree experience. But they’re looking for ways to provide them more cost effectively.”

WTW finds that some employers offering traditional group plans to pre-Medicare-eligible retirees will explore whether individual insurance could effectively replace group plans.

The survey shows 12% considering replacing the group plan, 7% have stopped offering the group plan and 3% have decided to end the group plan and implement insurance through a private marketplace in the future. Nearly three quarters (74%) of employer respondents have no action planned at this point, while 5% are considering retaining the group plan and offering access to individual insurance through a private marketplace.

The survey also finds many employers have altered their organization’s health care strategy after ceasing to offer a group plan to pre-Medicare-eligible retirees.

Data shows that 13% of employers plan to terminate all access and financial support, 75% to replace the group plan with access to and financial support toward individual insurance through a private marketplace and 4% to replace the group plan with access to individual insurance with no financial support.

WTW data also shows that 43% of employers agree if their health care costs escalate, it might impact the business’ ability to improve other benefits. Among respondents, 32% say it will put pressure on the balance sheet, 29% pressure on the firm’s profit and loss statement, 22% change their ability to manage cash flow, and 2% said it would restrict the business’s ability to hire.

Additionally, 13% of employers plan to change their retiree medical benefits within three years, as 49% will make a change because benefits are too expensive for the company to maintain, the report finds.

With individual self-insured plans—purchased through a private marketplace— employers accept the financial risk of providing health care benefits to retirees and supplement the cost. Employers with a fully insured group health plan buy health insurance for their retirees on the commercial market.  

Since the passage of the Affordable Care Act, however, self-insured plans have not spiked.

Trevis Parson, chief actuary for the individual marketplace at WTW, explains that self-insured plans are likely to grow in popularity because of legislation that was passed by Congress and signed by President Biden.  

“The recent passage of the Inflation Reduction Act is making private insurance marketplaces for individual coverage an even more attractive option for retiree benefits,” he says. “[T]he extension of premium tax credits and the improvements to [Medicare] Part D plans position private marketplaces to better offset rising health care costs for both organizations and their retirees.”

The survey was conducted by WTW in July and August, with 122 U.S. employers participating. Respondents employ 1.9 million workers.