In response to rising costs and mandated changes brought on by the PPACA (Obamacare), a growing number of U.S. organizations are dropping health coverage for retirees or replacing it with subsidies to retirees to purchase plans through the individual market, according to an Aon Hewitt survey.

I personally experienced this exact change when 3M Company ceased their health care coverage for retirees.  3M now provides a subsidy to purchase individual plans.  The guarantee by President Obama that “if you like your current plan, you can keep your plan” was not much of a guarantee after all.

According to Aon Hewitt consultants, 60% of U.S. employers are reassessing their retiree health strategies because of PPACA and more than half have indicated a strong interest. 40% of companies that have already decided to make the change have moved to directing retirees to the individual market and often include a subsidy.

Individual sourcing strategies create significant savings opportunities for the companies.

In the past, employers encouraged use of and used the Medicare Advantage plan due to the savings, but now these plans are challenged because federal funding cuts took place to pay for Obamacare — leading to increasing premiums, reductions in benefits and plans exiting in certain locations.

Aon also reports that employers are also pursuing settlements or benefit buyout options and purchasing annuities to provide an income stream in lieu of medical coverage.   Current tax and legal obstacles make this option difficult, but this could change too.

It’s a complicated subject and it is definitely not business as usual.

(Above information from SHRM article “Employers Reassess Retirees Health Strategy” August 2013)