Glaxo shifting retirees to health exchanges

Posted: October 25, 2013

GlaxoSmithKline P.L.C. is the latest large company to save money now and in years to come by shifting medical costs for future retirees from its company-sponsored plan to insurance policies purchased individually on health-care exchanges.

The London-based drugmaker with about 5,000 employees in Pennsylvania and New Jersey said Wednesday that it saved about $431.8 million for the third quarter of this year because of changes it explained to employees in September related to postretirement medical obligations.

Although the Affordable Care Act has spurred exchanges that will be used by adults of all ages who need to purchase insurance, Medicare plans offered by insurers have been sold via online exchanges for several years. Medicare is the government-funded insurance plan for those 65 and older.

Under the plan, Glaxo will put money into a Health Reimbursement Account (HRA), which the retiree will use to buy insurance on the exchanges.

Glaxo has about 5,500 Medicare eligible retirees in the United States. Current Medicare-eligible retirees will have a one-time choice, to remain in the company plan or opt for the fixed amount and shop for a better plan.

For now at least, current employees and the 4,000 retirees who are not yet Medicare-eligible will continue on the company plan but will be automatically enrolled in the Glaxo Medicare HRA when they become Medicare-eligible.

Based on years of service, Glaxo will pay up to $1,500 per person annually, with dependent contribution capped at $1,160 per person.

IBM said it would shift about 110,000 retirees to a private exchange starting Jan. 1. General Electric Co. is doing the same. DuPont Co. previously did. Walgreen Co. said it was joining the still-small, but growing list of companies moving current employees to a privately managed health-care exchange.

Glaxo chief executive officer Andrew Witty was not specific about further changes in this realm in 2014 or beyond. A spokeswoman said there were no plans as of now to move current employees to health-care exchanges.

"What we are saying to them is rather than having to take the package we offer you, we are going to give you an amount of money for you to choose your package," Witty said in a conference call with reporters Wednesday.

"The benefit to the employee is it gives them more choice and it gives them an ability to match their needs, and health-care expectations, to the market. . . . The benefit for the company is we have a definition around the contribution that we are giving."

Drug companies are on both sides of the health-care cost debate because they want high prices for drugs, but their employees and retirees want health-care costs covered.

Some big employers have stopped paying retiree health-care benefits entirely, partly because of the immediate cost and partly because projected expenses require setting money aside to meet accounting rules.

Some of those still paying have shifted from a defined-benefit plan to a defined-contribution plan, as occurred with the shift from company-run pension plans to company contributions to employee-run 401(k) accounts.

"The emerging trend is moving current employees to exchanges and getting out of health insurance all together," said Bruce Elliott, manager of compensation and benefits at the Society for Human Resource Management. He estimated 1 or 2 percent of the Fortune 500 had done so, with others watching and waiting.


Even companies that profit from drugs and health-care services have to deal with costs for their own employees and retirees.

Drugmaker GlaxoSmithKline said Wednesday it was switching future Medicare-eligible retirees to a defined- contribution health-care plan, under which people will get a set amount to buy insurance on an exchange.

IBM and General Electric are shifting retirees to private exchanges.

Walgreens said it would shift some current employees.




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