Employers Finally Figuring Out They Can Shift Retiree Costs to Medicare

Employers are finally showing signs that they have figured out they can take advantage of the generous Medicare payments to Medicare Advantage plans.

With Medicare Advantage plans paid 13% more than for the same beneficiary under traditional Medicare, many seniors have figured out the benefits are better in the private plans. Private Fee-For-Service (PFFS) plans even get more than that.

What is notable is how long it seems to be taking employers to figure it out.

Hewitt has said that a traditional Medicare Supplement policy could cost an employer $1,000 to $1,500 per retiree. But a PFFS plan costs more like $300 to $500 a year--and often with better benefits!

Now we are hearing that Kodak, IBM, and Xerox have decided to not leave this money on the table any longer. Even state retirement plans are getting into the act, including Michigan and Kentucky. Michigan is no surprise because one the of the three biggest national PFFS operators is Michigan Blue Cross.

Undoubtedly, many employers didn't jump into the Medicare Advantage game out of fears these extra payments couldn't last. They are likely right. But the earliest we will see Congressional cuts to the program is in 2009--and likely to hit PFFS first. The rest of the Medicare Advantage products will not suffer more than a gradual equalization with the traditional Medicare program over a few years.

I wouldn't make any longterm bets on PFFS, but the core Medicare Advantage program will likely be around for a longtime to come.