The surprising impact of offering retiree medical benefits 

Employers began closing retiree medical plans to new hires back in 1993 after these plans were deemed a form of deferred compensation and employers were required to use accrual accounting for them. Mercer’s National Survey of Employer-Sponsored Health Plans found that by 2023, the prevalence of open retiree medical plans — a plan for which new hires are eligible — had fallen to 17 percent of all large employers (500 or more employees) for pre-Medicare-eligible retiree coverage and 13 percent for Medicare-eligible retirees. However, the decline leveled off in 2024. It is also noteworthy that many employers that discontinue coverage for new hires continue to provide it to a closed group of current and future retirees. Including those offering coverage only to a closed group, a total of 32 percent of employers provide health coverage to retirees. 

Very large employers are considerably more likely to offer retiree coverage on an ongoing basis than all large employers generally, with about a third of those with 20,000 or more employees still providing coverage to pre-Medicare-eligible employees. Among employers of all sizes, coverage for pre-Medicare-eligible retirees remains more prevalent than coverage for Medicare-eligible retirees, as finding affordable individual coverage is more challenging for people not yet eligible for Medicare.  

Reasons for offering retiree medical

In our soon-to-be-released Survey on Health and Benefit Strategies for 2026, we explored the motivations behind employers' decisions to continue offering retiree medical plans. The top reason cited is to support workers in retirement. Older workers can be faced with significantly higher healthcare costs in the individual market, especially if they retire prior to becoming eligible for Medicare.  

Concern about these costs can cause older workers to delay their desired retirement date. Offering retiree medical coverage is a way to reduce the financial burden of retirement. Mercer’s National Survey of Employer-Sponsored Health Plans indicates that among employers that offer retiree medical coverage, the average retirement age is two years younger — 63 years compared to 65 years among employers not offering coverage. 

Managing cost for retiree medical plans

Even with the rising cost for retiree medical coverage, the majority of employers that currently sponsor a retiree medical plan are not considering dropping coverage. Instead, many will look towards typical plan design and contribution strategies to manage cost. Some of those offering coverage to Medicare-eligible retirees will look at strategies aimed at maximizing government subsidies to lower costs in 2026. Recent upward cost pressures affecting Medicare-eligible coverage will also have some employers exploring a retiree medical exchange over group-sponsored coverage. 

Medicare Advantage plans have been a popular choice for the Medicare-eligible population in recent years, as government subsidies have allowed plan sponsors to offer coverage for a relatively low premium – and often with popular supplemental benefits. In response to current premium increases, some employers may opt to reduce or remove these supplemental benefits.  

Rising healthcare costs are pressuring plan sponsors to re-evaluate many aspects of their health benefit programs. Given the aging of the US population, employers contemplating changes to retiree medical offerings should keep in mind the important role of retiree medical benefits in workforce management – and in creating a supportive work environment for their workers prior to retirement.