AT&T shifting retirees to private health exchanges in 2015. In an 8-K filed Wednesday, AT&T disclosed plans to shift supplemental heath coverage for its Medicare-eligible retirees to a private exchange starting in 2015. This adds to a list of large and prominent employers, including IBM and Time Warner last month, getting out of the business of administering retiree health benefits in favor of giving retirees a lump sum to shop among competing MedSup, Part D and Medicare Advantage plans on an exchange. We expect the shift to more profitable products on retiree exchanges to be a long-term, positive trend for managed care. · AT&T has about 330k retirees eligible for benefits (as of year-end 2012, according to its 10-K). Most are likely Medicare eligible, but it is not clear exactly how many are affected by the switch. In any event, this could be the largest such announcement to date, following in the footsteps of other major employers such as IBM, Time Warner, DuPont, Caterpillar, CSX Corp, General Electric, Caterpillar and Whirpool. · Retiree exchange trend positive for managed care. The industry is poised to capture more profit dollars as more retirees buy fully insured MedSup and Medicare Advantage products on exchanges instead of getting their coverage through a typically self-funded employer plan (See Figure 1 on next page). Most retirees are picking MedSup plans in combination with a Part D plan for drug coverage as long as the employer contribution covers this more expensive but less restrictive option, but over time the mix could shift toward more Med Adv, which has much higher per member profits (~15x ASO retiree plan) than MedSup/Part D combo (4x ASO). The upside for MCOs is clearer with retiree exchanges than for a major shift of active employees to exchanges, where the profit differential between risk and ASO is smaller (4-5x) than for Med Adv and the potential disruption to existing business is higher. Roughly 10m Medicare beneficiaries have supplemental coverage through an employer (see Figure 2). · For more details on private exchanges, including distinction between retiree and active employee exchanges and potential earnings impact on our managed care coverage universe from the latter, see our recent note “Thoughts on Private Exchanges: Uncertain Trajectory But Potential Upside For MCOs,” published October 10, or email for a copy of our slide presentation. Justin Lake (1-212) 622-6600 justin.lake@jpmorgan
Posted on: Sat, 09 Nov 2013 00:04:40 +0000
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