GlaxoSmithKline saves $431M moving retirees to private healthcare exchanges
|GSK CEO Andrew Witty|
Yesterday, GlaxoSmithKline CEO Andrew Witty congratulated his CFO for digging in for long-term cost-savings--namely spending on healthcare coverage and pensions. Thanks to Simon Dingemans' work on retiree medical benefits, for instance, the company saved £267 million last quarter, or about $431 million.
That's quite a chunk of change. Just how Glaxo ($GSK) went about this budget-cutting is this: It shifted future U.S. retirees--and current retirees, if they so choose--from the company's healthcare plan to a private health exchange. There, Medicare-eligible retirees can buy their own coverage, subsidized by GSK, the Philadelphia Inquirer reports. About 5,500 Glaxo retirees are eligible for Medicare now, and those people can choose whether to stay on the company plan. The 4,000 retirees who aren't yet eligible for the U.S. government-sponsored healthcare program will automatically move to the exchange when they hit Medicare age.
The company will pay up to $1,500 per employee each year, depending on the retiree's years of service, plus a maximum of $1,160 per dependent. "What we are saying to them is rather than having to take the package we offer you, we are going to give you an amount of money for you to choose your package," Witty said during yesterday's earnings call, adding that employees have more choices under the new approach. "The benefit for the company is we have a definition around the contribution that we are giving."
Glaxo is hardly alone in moving retirees to private exchanges. Several major benefits groups--including Towers Watson, Aon Hewitt and Mercer--operate the exchanges, which offer a range of coverage options at a range of prices. Those groups are pulling out all the stops to market their exchanges to major companies with big workforces. (The benefits groups also collect consulting fees on the moves, but that's another story.) As the Inquirer points out, IBM, General Electric and DuPont have all moved retirees to exchanges from company plans.
As Witty noted, the defined-contribution approach gives companies a bead on their liabilities for future healthcare costs for retirees. Keeping retirees on company plans means their coverage costs are as volatile as healthcare costs and insurance premiums can be. Plus, under accounting requirements, companies have to set aside money to cover those future costs. But critics say companies are simply shifting the burden of healthcare inflation onto retirees, particularly those who have higher medical expenses and thus need broader coverage.
Witty said GSK isn't planning to do the same with employee healthcare coverage, though other big companies are taking that option. Walgreen ($WAG) recently attracted a lot of attention for shifting its workforce to a private exchange operated by Aon Hewitt. Aon and its counterparts are hoping to expand that group quickly. And well it might; experts say 40% of employers are considering private exchanges over the next few years.
- read the Inquirer piece
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