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Employers interested in moving retirees to public exchanges, Mercer says

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Nearly half — 45% — of employers that offer health care coverage to pre-Medicare eligible retirees say they are considering or already have begun directing the retirees to public exchanges, according to a new Mercer L.L.C. survey.

The appeal of such a strategy for employers includes the elimination or reduction of costs of an expensive benefit for employers, while retirees, depending on income, could be eligible for federal premium subsidies that could be more generous than those provided by their former employers.

The viability of such strategy, while much discussed, was in doubt pending the outcome of litigation challenging the legality of 2012 IRS rules that authorized the subsidies in the 34 states where the federal government offers an exchange after the states declined to do so. Plaintiffs in King v. Burwell said the health care reform law limits the premium subsidies to those states setting up exchanges.

But the Supreme Court last month upheld the IRS rules in a 6-3 decision, assuring that the door stayed open for employers interesting in shifting pre-Medicare eligible retirees to public exchanges.

“The good news we see out of this survey is that employers are starting to see win-win opportunities in the availability of subsidized coverage through the public exchanges,” Tracy Watts, Mercer’s leader for health reform in Washington, said in a statement.

In one widely discussed approach, employers would terminate their early retiree health plans and establish and contribute to health reimbursement arrangements for retirees. Retirees then would have a choice: Tap the HRA to pay health insurance premiums purchased through a public exchange or, particularly for lower-income retirees, skip the HRA contribution in favor of a likely larger federal premium subsidy to buy coverage.

The Mercer survey of nearly 600 employers was conducted just after the Supreme Court upheld the IRS rules on June 25.

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