Last week, Towers Watson & Co. unveiled a program that would enable employers to eliminate unfunded retiree health care plan liabilities for Medicare-eligible retirees by shifting those liabilities to insurers through the purchase of group annuities.
“A lot of employers want to defuse those liabilities, but many will wait and see” for results before deciding, Mr. Newman said.
Under the program, employers would first have to adopt a defined contribution approach for health care coverage offered to Medicare-eligible retirees. Under that approach, employers agree to make a fixed contribution towards the premiums of health care plans available through Towers Watson's private exchange, with retirees picking up the difference between the credit provided by their employers and the cost of the plan they select.
In the risk transfer program, the employer would purchase, paying the full premium upfront, a group annuity from an insurer. The insurer then would provide retirees with a monthly tax-free check, which a retiree would put towards the premium of the plan he or she selects in the Towers Watson Exchange, known as OneExchange, through which dozens of insurers offer coverage.
Through the approach, which Towers Watson calls Longitude Solution, an employer would fully shift its retiree health care liabilities, including unknown factors of retiree longevity, to an insurer.
Retiree health care “benefits do not engage or attract new talent, yet they create balance sheet volatility and income statement expense, and divert management time,” Towers Watson said in a written analysis describing the program, claiming those factors would be eliminated through its risk transfer approach.
“This seems to be answering an employer need: to make retiree health care costs more predictable,” Mr. Newman said.
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