Extend Health, a division of Towers Watson, is in the midst of an explosion in demand as employers race to drop retirees from their group insurance plans.
IBM got attention recently, but they follow a heralded list of employers. Prior to its purchase by Towers Watson for $435 million, Extend Health filed for an IPO. Their S-1/A stated:
Extend Health is a leading provider of health benefit management services and operates the largest private Medicare exchange in the United States.
We have provided an effective alternative to traditional group Medicare health plans for over 150 private and public sector clients, including over 30 Fortune 500 companies such as Caterpillar, General Motors, Honeywell and Whirlpool, and we have helped hundreds of thousands of retirees and their dependents navigate to, evaluate and choose a health plan using our proprietary exchange platform and decision support tools.
Employers are moving thousands of retirees from group health insurance plans to individual Medicare Advantage plans. Such plans have historically been the most profitable for health insurance companies. Extend Health exists to make this happen.
Our substantial revenue growth from fiscal 2009 to fiscal 2010 was driven by the successful transition of a group of General Motors’ retirees in fiscal 2009, resulting in a 202% year-over-year increase in active core members.
The addition of 110,000 IBM retired employees should drive another significant revenue boost and membership increase.
The HIll reported IBM's move but it failed to mention a prominent retired Congressman, who served on Extend Health's board from 2009 to Towers Watson's purchase. Rep. Dick Gephardt held nearly 57,000 shares of Extend Health. The S-1/A stated:
Richard A. Gephardt has served on our board of directors since February 2009. Mr. Gephardt currently serves as President and Chief Executive Officer of the Gephardt Group, LLC, a multi-disciplined consulting firm, and as a consultant for The Goldman Sachs Group, Inc. since January 2005. Mr. Gephardt served as Strategic Advisor from June 2005 until April 2010 at the law firm of DLA Piper in the firm’s Government Affairs practice group.
Gephardt serves as a director on the board of the Ford Motor Company, an auto manufacturer, Centene Corporation, a health care provider, CenturyLink, Inc., a communication services company, Spirit Aerosystems Holding Incorporated, a supplier of commercial airplane assemblies and components, and United States Steel Corporation. Mr. Gephardt previously served on the board of Dana Holding Corporation, an auto parts manufacturer and supplier, from January 2008 to March 2009.
Centene is a health insurance company which focuses on subsidized small employer and Medicaid coverage.
It's hard to find a board nowadays without an ex-Congressman or CMS chief on it. Dr. Mark McClellan, head of the Center for Medicare/Medicaid from 2004-2006 sits on Extend Health's Advisory Board.
The spate of employers dumping retiree health insurance will enrich corporations and their various ex-public servant board members and consultants. What will it do to retirees? I expect it to add more financial pain and complexity to their lives.
Frankly, Human Resource's selling these moves as "an opportunity for more flexibility, more choices, and the chance to customize plans" shows how far the HR bar has fallen. I'd wager Towers Watson has draft language on positioning the dumping of retirees from employer group plans and that it says nothing about abdicating its longstanding commitments to workers.
The twisted part will come in increased Executive Incentive Compensation from dumping retirees. It may take some time to work its way through the belly of the snake, but rest assured, it will.