Employers take another look at Medicare Advantage plans for retirees

Employers are understandably skittish about encouraging retirees to enroll in Medicare Advantage plans since so many of the predecessor Medicare+Choice plans withdrew from the market in the late 1990s in response to federal funding cuts.

But because the Medicare Prescription Drug Improvement and Modernization Act of 2003, which created the Medicare Advantage program, also provided for creation of Medicare fee-for-service plans and regional preferred provider networks--two options previously unavailable to Medicare beneficiaries--some U.S. employers are giving this option another look.

"Employers are using Medicare Advantage plans more, but cautiously more," said Mike Morfe, senior vp in Aon Consulting's Somerset, N.J., office. "They're not jumping in with both feet like in the '90s."

"The concern is that the government will cut back on funding," said Derek Guyton, a principal at Mercer Health & Benefits in Chicago.

The 2003 Medicare law not only raised the amount of subsidies the federal government pays to health plans to enroll Medicare beneficiaries, but also provided for annual increases tied to the medical inflation rate.

"The big ones--Humana, UnitedHealth--believe they can make this work. The hard part will be managing the payment so that insurers aren't getting more than they need, but they're still getting enough," said Mr. Guyton.

The addition of Medicare fee-for-service plans makes administration easier for large, multistate employers with retirees scattered around the country because they no longer have to contract with multiple health plans, he said.

"It also allows employers to have experience rating across the country," Mr. Guyton said. In fact, "because of the availability of Medicare fee-for-service plans, we've had some employers who went full replacement."

For the most part, however, when employers offer a Medicare Advantage plan, it usually is as an additional option and not as the sole plan available to retirees, said Cara Jareb, director of retiree medical consulting at Watson Wyatt Worldwide in Washington.

"The good news is--for the first time--an employer could almost guarantee that they could cover all retirees with some form of Medicare Advantage plan. The problem is, employers are very concerned about the long-term viability," said Rick McGill, a consultant at Hewitt Associates Inc. in Atlanta.

According to a 2006 Kaiser Family Foundation/Hewitt Associates survey on retiree health benefits, 38% of U.S. employers offered some type of Medicare Advantage plan in 2006 and 45% said they are likely to do so in 2007. But the percentage dropped to 40% when employers were asked about the likelihood that they will offer a Medicare Advantage plan by 2010.

"You're not sensing there's a huge degree of confidence," Mr. McGill said. "There is a lot of distrust as the government tries to balance its budget."

"The government can provide funding and the government can take it away," said Ms. Jareb.