Medicare+Choice will affect retiree benefits

by Jerry A. Nebbia

for the Business Journal

As the Balanced Budget Act of 1997 hits home with 26 million Medicare recipients some of them, retirees from your company you may find yourself scrambling to respond. The act includes a new options for Medicare called Medicare+Choice, modeled after the private sector's managed care concept.

Medicare+Choice will be tested in five states during 1999 (Arizona, Florida, Ohio, Oregon and Washington) as a prelude to a national rollout in 2000. The process begins this month, when a detailed enrollment handbook will be mailed to Medicare recipients in the test states, and a shorter brochure will be sent to all other Medicare recipients.

While the government is trying to make this communication as "user friendly" as possible, it's a complex topic. Here's a preview of what Medicare recipients face:

"You can return to your Medigap policy if you dropped it to enroll in a Medicare health plan or a Medicare SELECT policy. However: 1. This must be the first time that you enrolled in a health plan or SELECT policy; 2. You must leave the health plan or SELECT policy within one year after joining; and 3. After leaving your health plan or SELECT policy, you must choose a Medigap policy within 63 days. If you meet these requirements, you can return to your original Medigap policy, if it is still offered, or policies A, B, C or F." (From "Medicare & You," by the Health Care Financing Administration.)

Would your 85-year-old mother understand that? Do you?

Further complicating the matter, Medicare+Choice will prompt some insurers to develop new managed care products for this senior market and to market these plans directly to seniors.

Retirees initially in the test states but eventually nationwide are likely to see their televisions blaring and mailboxes bulging with solicitations to join various health plans under Medicare+Choice.

At the same time, mixed messages abound. Current cutbacks in government reimbursements for Medicare are causing other insurers to pull out of this market altogether, resulting in cancellation notices for many seniors who must now find other medical coverage by Jan. 1.

Clearly, further explanation of Medicare+Choice will be needed, and retirees are likely to turn to their benefit co-providers their former employers for answers.

Unfortunately, many of those employers aren't ready. A recent survey by William M. Mercer Incorporated found that of the 62 percent of employers that offer retiree medical benefits (mostly large and mid-size organizations), more than 50 percent have not done anything specific to prepare for the barrage of phone calls, letters and e-mails expected when the Medicare+Choice information reaches Medicare recipients this month.

Even if your company has not prepared, it's not too late to take actions that will significantly benefit both your organization and your retirees. To prepare, you must consider both the immediate and longer-term issues associated with the introduction of Medicare+Choice.

The immediate need is to be prepared when the deluge of calls begins. Human resources professionals must be well-versed on the provisions and implications of Medicare+Choice so they can provide explanation and interpretation for retirees who call.

Your company also must also develop an appropriate response to the inevitable question: "How will this affect the retiree benefits I currently receive from the company?"

Depending on how your current retiree benefits are designed, the answer will be different for different employers. The key is to be consistent in telling retirees what to expect now and what to expect in the future, especially if your company will need to modify its benefits to coordinate with the new Medicare+Choice option.

Any communication must take into consideration the specific demographic profile of the retiree audience. According to the American Association of Retired Persons, 60 percent of retirees know little or nothing about managed care. Physical impairments also can hinder the communication process. Poor eyesight and low literacy affect senior citizens' reading comprehension skills. In addition, according to the Urban Institute, Alzheimer's disease, memory problems and other such impairments afflict 20 percent of the retirement-age community.

Following the initial focus on communication, employers need to consider the longer-term implications of Medicare+Choice. Employer-provided retiree medical benefits are designed to integrate with Medicare. This new Medicare option means that most plans will need to be modified, if not redesigned altogether.

This new twist comes at a time when employers already are rethinking their retiree medical benefits. A significant accounting rule change in 1993 has prompted many employers to cut back on medical benefits to retirees. This rule changed the way employers account for their promised future benefits to retirees essentially requiring them to recognize such expenses sooner.

According to the recent Mercer survey, three-quarters of the respondents that offer retiree medical benefits have modified their benefits in the past two years. The most popular changed include increasing retiree premium contributions, adding managed care options and increasing plan copayments and/or deductibles.

Given all of this change, employers should seize the opportunity to think broadly and strategically about retiree medical benefits: What role do they play in your overall benefits offerings? Does this make sense for your organization going forward? What value do these benefits provide to your organization and your employees? Are they effective in helping you attract and retain employees who contribute to the success of your firm?

While employers should begin this type of discussion soon, final decisions regarding plan design probably won't be made until later in 1999. At that time, employers will have a better understanding of the new Medicare landscape, including the final scope and cost of the many new Medicare+Choice plans introduced by insurers nationwide.

Once this is known, they'll be in a much better position to quantify the impact on their own retirees and benefits, and modify their own plans accordingly.

Medicare+Choice means significant change for employers and retirees. Instead of scrambling to respond, employers can take action now for a smooth transition as Medicare meets managed care .

(Jerry A. Nebbia, FSA, is head of the health care and group benefits consulting practice in the Kansas City office of William M. Mercer Incorporated.)

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