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For retirees, a move to private health exchanges with cash to cover the shift

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One of the biggest benefits trends in recent years has been employers dropping retiree health coverage and moving retirees to private exchanges.

Last year, LafargeHolcim U.S. joined that movement.

For decades, the building materials manufacturer provided the coverage directly to both pre- and Medicare-eligible retirees and their spouses.

But with costs soaring, that could not continue.

“The cost of coverage was becoming unaffordable for both retirees and the organization” said Philia Swam, manager of health, wellness and group benefits at LafargeHolcim U.S. in Chicago.

One potential approach was to stop offering retiree health coverage, but “we didn't think that would be fair,” Ms. Swam said. “Our retirees worked for us for very long periods of time — in many cases, their entire careers. We wanted to be able to provide them with something to help offset the cost of coverage.”

What was fair, Ms. Swam said, was switching retirees and their eligible dependents to a private insurance exchange, a move that some of LafargeHolcim's competitors already had made.

“We looked at what was going on in the marketplace. Many of our cement industry competitors already had made that leap,” Ms. Swam said.

LafargeHolcim U.S., a unit of LafargeHolcim Ltd. that was established last year with the merger of Lafarge S.A. and Holcim Ltd., made the switch in two steps. At the end of 2014, legacy company Lafarge ended coverage for Medicare-eligible retirees and dependents. Instead, it set up health reimbursement arrangements for all eligible U.S. retirees.

For Medicare-eligible retirees who worked for the company before last year's merger, the company credited each retiree's HRA with $1,950. It added another $1,950 if the retiree had a spouse.

Then, at the start of this year, LafargeHolcim took the same approach for pre-Medicare eligible retirees who worked for Lafarge before it merged with Holcim. It stopped offering retiree health care coverage, but put $7,000 into an HRA for each retiree and another $7,000 for their spouse.

For Medicare-eligible retirees who had worked for Holcim, the company contributes $8 a month times their years of service and for pre-Medicare-eligible retirees the company contributes $4 per month times their years of service.

The subsidies for legacy Holcim U.S. retirees are lower because it did not provide the same level of subsidies that legacy Lafarge extended to its retirees, she said.

Medicare-eligible retirees can tap those HRA contributions to purchase coverage in a private health insurance exchange, OneExchange, offered by Willis Towers Watson P.L.C., as well as pay out-of-pocket medical expenses.

Pre-Medicare eligible retirees can use the contributions to get coverage in OneExchange or to secure coverage in the public health insurance exchanges authorized by the 2010 health care reform law.

“Depending on the state in which the retiree lives, options are vast. This gives individuals much more flexibility,” Ms. Swam said. “Most retirees have at least 20-plus plan options to choose from in the pre- and post-65 markets.”

By contrast, prior to moving to OneExchange, pre-Medicare-eligible retirees had two plans from which to choose and Medicare-eligible retirees had just one.

At the same time, LafargeHolcim U.S. can much better predict its costs because its contributions for coverage are fixed. Previously, costs for pre-Medicare-eligible retirees were, for example, rising about 8% annually, she said.

In addition, human resources staffers now have more time to handle other issues, Ms. Swam said.

In all about 800 pre-Medicare-eligible retirees and spouses and 4,000 Medicare-eligible retirees and spouses now receive coverage through OneExchange, Ms. Swam said.