Employer Retiree Groups Will Move To MA, but How Soon Is the Question

Reprinted from MEDICARE ADVANTAGE NEWS, biweekly news and business strategies about Medicare Advantage plans, product design, marketing, enrollment, market expansions, CMS audits, and countless federal initiatives in MA and Medicaid managed care.

By James Gutman, Managing Editor
January 26, 2012 Volume 18 Issue 2

Employer groups stand to become a much bigger contributor to Medicare Advantage growth than they are now, but any big move probably won’t occur until 2013 and beyond, according to executives, consultants and securities analysts.

“There’s a great deal of interest” on the part of employers, said Humana Inc. Chairman and CEO Michael McCallister in response to a question following his presentation at JPMorgan’s annual health care conference for investors in San Francisco Jan. 10. “There’s also a great deal of inertia.” He declined to forecast when employers that now offer retiree medical benefits would reach the “inflection point” to switch their retirees to MA. “The demand is there, but they won’t pull the trigger,” McCallister explained.

End of RDS May Spur Switches

One big reason for the demand, aside from the high and rising cost of retiree medical benefits, is that the federal Retiree Drug Subsidy (RDS) payment to employers ends next year. Faced with the loss of that subsidy, analysts and consultants predict, many employers will make the switch to MA, with the biggest beneficiaries perhaps likely to be insurers that already have large employers’ business.

Cigna Corp. is one of those, and CEO David Cordani said Jan. 11 that the company now expects its acquisition of HealthSpring, Inc. (MAN 10/27/11, p. 1) to close in the first quarter, earlier than expected. Securities analyst Scott Fidel of Deutsche Bank, in a Jan. 11 research note following Cordani’s presentation at the JPMorgan conference, saw a plus for that effort since “an earlier close should provide Cigna with more time to implement its group Medicare sales strategy with large-employer clients for the 2013 selling season.” Fidel added that “Cigna previously did not have a credible Medicare offering.”

But some others have doubts that employers will pull the trigger in a big way on this during 2012. The employer-group move to MA has been expected “for a couple of years,” says, for instance, Nathan Goldstein, CEO of consulting firm Gorman Health Group, LLC, but it has been “slow to happen.” While the approaching start of insurance exchanges under reform has “sped up” employer thinking about this, and such moves to MA will “take off in a couple of years,” Goldstein tells MAN, “I would be surprised if it happened this year.”

Gary Jacobs, senior vice president, corporate development at MA sponsor Universal American Corp., has a similar outlook. An increasing number of employers’ benefit departments is bringing up the concept of a switch to MA, he tells MAN; “I don’t know if we will see an impact in 2012, but we will in 2013” if the elections this fall, in effect, uphold the health reform law. Another spur to such moves, he adds, is that about 10,000 Americans are turning age 65 daily, creating both a “demographic imperative” to do something about retiree medical costs as well as the benefit of having an age-in population that is accustomed to managed care.

Greg Scott, a principal in Deloitte Consulting LLP, also isn’t expecting “much” of an employer retiree move to MA this year. However, he tells MAN, state and local governments with labor contracts that include retiree medical benefits are looking at this with growing urgency.

The RDS is a big factor in that, since its end in 2013 will prompt the “last land grab” for Medicare Part D beneficiaries, says Mike Flagstad, CEO of drug-benefit-oriented consulting firm Visante, Inc.
Flagstad tells MAN he is surprised so many employers have stayed with RDS rather than converting to Part D or dropping coverage, and theorizes that perhaps compliance concerns have been part of the reason. There haven’t been a lot of enforcement actions regarding employer switches, though, he notes, and employer plans that Visante has spoken with now are considering moving retirees into either MA plans or stand-alone Prescription Drug Plans (PDPs).

The overall employer move, observes consultant Stephen Wood, senior vice president at OptumInsight, will be part of the growing trend toward defined-contribution rather than defined-benefit plans for retirees. And his colleague, OptumInsight Vice President Kirk Twiss, predicts that after RDS goes away in 2013, some employers will just cut out retiree drug benefits entirely.