Tuesday, September 17, 2013

IBM Extend Health for Medicare products Is NOT a true Health Exchange

I don't know why IBM is referring to the transition for medicare eligible retirees as a transition to a private health insurance exchange.  At best it is confusing and at worst it is misleading.  I believe Extend Health does offer "exchanges" to companies for employees but what they are doing for us is much less than what happens in a private exchange.

The words "health insurance exchange" are so overused.  The federal government is even moving away from "exchange" wording and talks about the Health Insurance Marketplace when describing the Affordable Care Act "health insurance exchange" although what is happening with the ACA is really an exchange.  The mechanics of ACA will be set up to help people under 65 who are uninsured find the best, cheapest group insurance plan available to meet their needs and also to help them find out if they qualify for government assistance in paying for that health insurance plan. States will be negotiating with insurance companies (if they setup a state run pool) for the group plan products offered in the exchange.  Individuals cannot buy ACA offered plans directly from insurance companies because ACA plans are not individual plans. Buyers have to contact ACA  support staff to register and ACA representatives will be be helping them pick the best fit products without any financial incentives going to the ACA function or the ACA representatives.

The Extend Health services we are getting are not anything like that.  Extend Health has deals with a number of insurance companies to be able to sell EXACTLY THE SAME standard Medicare insurance policies that are available and for sale to any Medicare eligible individual in the "open marketplace" and at the same price. There is no group discount. There is no specially structured insurance product for medical and prescription drug insurance (ala what we had with IBM in 2013).  EH will also have deals with insurance companies to provide dental and maybe vision insurance because Medicare does not cover routine eye exams and eye glasses - maybe EH will negotiate a group discount for those products. The agent I talked to implied there will not be any vision policies but maybe he was wrong.  I keep saying this --- THINK OF THE SERVICES WE GET FROM EXTEND HEALTH AS USING AN INSURANCE AGENT. 

Extend Health won't be  offering you the cheapest, best policy in the marketplace for your zip code.  They will offer you the best fit for the products they sell.  They won't try to figure out if you would qualify for government assistance to pay for your premiums (yes, there are low income assistance programs for people on Medicare) but it's unlikely IBM retirees would qualify. The ONLY reason to use IBM's Extend Health setup to buy an insurance policy is it will trigger you to be able to get your IBM HRA or IBM FHA subsidy.  It is my plan to buy one insurance policy from EH to get access to my subsidy and the rest of my insurance policies from EH only if they are cheapest, best policies I can buy in the open marketplace.

There is also something I found describing the legal mechanics of an HRA account that you may find interesting. It indicates there is NO LEGAL reason that IBM is not allowing us to roll over HRA balances from year to year and no legal reason to use Extend Health.  Also, IBM could have just given us access to HRA accounts without having Extend Health as a middle man and allowed us to spend the money as we pleased on medical services - even forgo buying insurance policies. I continue to believe IBM is using Extend Health because IBM believes we will not use up all of the subsidy money in our accounts and that will translate to millions of dollars of reduced expense to IBM. This excerpt came out of a much longer position paper from a non-profit organization.  I didn't provide the link because it was a politically biased position paper. I believe the excerpt is not:

In 2002 the Internal Revenue Service issued a Notice (2002-45) and Revenue Ruling (2002-41) creating what it termed a “Health Reimbursement Arrangement” (HRA).7 These rulings were a new way of interpreting Sections 105 and 106 of the Internal Revenue Code, which authorize employer spending on health services.

Essentially, employers may take such spending as a business deduction without adding the funds to the employee’s income. Such money may be deducted only when it is actually spent, not when it is promised. The IRS said employers may allocate an amount of money for employees to spend in the future, but this allocation is only “notional” (there is no actual money in an account) and the employer may deduct it only when it is in fact spent on a health care service.

HRAs allow employers to contribute to an employee’s health care expenses (including premiums) without restriction by creating a Health Reimbursement Account, which is tax-free but may be used solely for health care expenses. Unspent funds may roll over and build-up over time, but always remain the property of the employer until used.

There is no restriction on the amount of money, and there is no requirement that there be any kind of insurance policy to accompany the account. Thus, HRAs may be for any amount of money and they may go along with any kind of insurance programs – or none at all. An employer may simply make an HRA available instead of providing insurance.


  1. Nice Post! What product do you plan on buying? And what do you plan on buying outside of EH? As I understand it, they have no plans to sell vision nor dental plans. At least that was what they implied at the meeting I attended. I checked what they offered in our state this year (I assume it was for 2013 and not 2014 as indicated in the Yahoo IBM Retiree/Pension Groups). In my state, they offered either a Medigap plan or an Advantage plan. Their choices were few either a couple from BCBS and a couple from Humana. There was no UHC plan nor any from other insurance companies. If the same holds true where you live, would you buy either the Medigap or Advantage plan for yourself and go on the open market for your spouse (assuming you are married)?

    It seems to me that you either go through them totally or not at all and forego the HRA - IF your choice is limited to just a Medigap or an Advantage plan. I guess you could shop the open market for vision and dental plans on your own if EH does, indeed, not provide them. It would be great if they provided all the plans that were available under IBM. I had gone with an Advantage plan (AARP via UHC HMO plus POS) that allowed me to go to any doctor in the country (that accepted Medicare), the difference being I had a higher co-pay (additional $5) out of network plus a new max for OON. Since I signed up for it outside of IBM, I was able to sign up for the Aetna Integration Plan A, which covered all my co-pays and additional expenses. Next year, UHC is dropping the POS part of the plan - strictly HMO. So much if you like your plan you can keep it. My primary already went into concierge practice (pay $1500 up front to see him) - for that amount, he will spend as much time with you as you need. A number of other doctors have done the same thing! He told me he had enough dealing with Medicare and related insurance plans not even covering costs plus adding a lot of extra paper work (required more staff).

    BTW, there was an article in our local paper quoting an IBM executive saying the ACA had a lot to do with this decision for IBM to push the retirees onto EH and they are currently reviewing the process for full-time employees.

    1. If you read my entire blog – I have a post telling what plans I will buy and why. I will buy a medigap plan. I hope to be able to buy medigap F high deductible. If it is not available I will buy whatever medigap plan with the most coverage they offer in my zip code as it makes sense to do it and use the subsidy to pay for it. If they offer the part D prescription drug plan that covers my drugs and it is the same one I would have purchased via www.medicare.gov then I will buy that too. I doubt I will buy a dental or vision plan. It depends on what they offer.
      The IBM executive is full of ----. This has NOTHING to do with ACA. Companies have been doing this since 2004 – it is simply a way to weasel out of promises made to retirees and for IBM to reduce expenses and possibly spend less on subsidies because people will screw up reimbursements. My estimate is it will be about a $45-90 million savings.

  2. I should have added what that executive did not mention, if EH offers the same plans for 2014, it is likely many retirees may skip dealing with EH and finding cheaper plans on the open market. This would save IBM $3500/3000 a person.The "Medicare and You for 2014" already shows plans with drug coverage that have a $0 premium (depending on where you live - even within a state).

    1. Those plans are Medicare Advantage plans and I will not use a Medicare Advantage plan. I have a post listing all the reasons why.