How Employer's Retiree Group Coverage Can Help You Retire Before 65
On average a 65-year-old couple will spend about $300,000 on health care throughout their retirement, therefore it is one of the most common worries for those nearing retirement. This can be such a worrisome topic, that some affluent people may opt to delay retirement and continue working - just so they have medical coverage until reaching Medicare age.
WHAT IS IT?
If you worked for your employer for a long time, you likely do not recall reading about “Retiree Group Health Coverage” in the benefits packet. Simply put, it is an option to purchase or continue health insurance coverage through your employers group plan.
Participating in a group plan will carry lower costs when comparing it to purchasing individual coverage. If you belong to a union, it may be referred to as “Union Retiree Health Plan” which may differ a little bit from corporate retiree group coverage, but fundamentally it is the same concept.
While it is not the be-all and end-all, Retiree Group Health Benefit can be extremely helpful for someone retiring prior to Medicare age of 65. It is important to note that Federal and Municipal employees may have benefits that are substantially different from what is offered by businesses in the private sector.
AVAILABILITY(2):
About 1-in-3 large companies are currently offering “Retiree Health Benefits.” In fact, over the last 30 years the number of companies offering this benefit has decreased substantially: in 1988 about 66% of large companies offered it, and currently only about 27% do.
As the number of companies offering this type of coverage has decreased over the last 30 years, alternatives for health insurance in retirement have also evolved. However, reviewing those alternatives is beyond the scope of this discussion and is covered throughout our health care for early retirement blog series.
COST:
Quite often, the first impression of a retiree after reviewing coverage offered through their employer is just how much more expensive it is compared to what they used to see deducted from their paychecks. While you are employed, the employer shoulders about 73% - 83% of premiums which on average is about $7,739/yr(1). Upon retirement, your employer stops paying their share of the premium and passes that cost on to you. On a monthly basis this could result in a rise of $110/mo. to $645/mo., which is a staggering increase from what one is used to paying – but could be a steal if your income is high enough and you don’t get subsidies.
Let’s use an example to better illustrate when your employer’s retiree group coverage might be a steal. Bob Jones is a 62-year-old retiree with $85,000 of retirement income decides to purchase health insurance coverage via the Affordable Care Act exchange. The cost to Bob is $600/mo. for Silver coverage after a monthly subsidy of $380. However, if his annual income exceeds $139,000 he would no longer receive ACA subsidies and his monthly cost would be $984(3) – at which point retiree health insurance coverage costing $645/mo. provided by your employer looks like a great deal.
Assuming that both policies in this example provide substantially similar coverage, we see that it is more cost-efficient for retirees with low taxable incomes to use coverage purchased from ACA exchanges and take advantage of subsidies. Whereas for retirees with higher incomes, it may make sense to hold onto employer provided coverage if it is offered.
It’s important to note that ACA subsidy planning has much more under the hood than what can be explained in this article. To that end, we will be taking a more in-depth look at ACA subsidies later in our health care for early retirement blog series.
MEDICARE:
If you end up keeping your Retiree Health Coverage throughout the entirety of your retirement, it is extremely important that you also sign up for Medicare part A and B when you become eligible for it. The reason for this is that your Retiree Health Coverage is designed to supplement Medicare and may not pay medical costs during any period you were eligible for Medicare but did not sign up for it.
Another important nuance to remember is to find out if your Retiree Health Coverage includes prescription drug coverage – if it does not, make sure to enroll in Part D when you become eligible. Doing so allows you to avoid paying a penalty down the line. If your retiree plan does offer prescription drug coverage it would behoove you to find out if you are permitted to delay Part D enrollment and not face a penalty.
This only begins to scratch the surface of what is involved with Medicare planning, which is why we will be covering it in a separate series of blog articles later this year.
KEEP IN MIND:
Your employer is not required to offer Retiree Health Coverage benefits, so it is important to review the Summary Plan Description (SPD) to find out. It would also be wise to check with your benefits department to understand how much flexibility your employer has to change or eliminate coverage altogether. Lastly, it is also important to keep good records of any notices of changes your employer makes, in case you have to defend your rights in court.
HELPFUL RESOURCE:
For additional guidance about Retiree Health Coverage, we recommend watching the following video: Health Insurance Before Medicare. This is a self-help online course created by Paragon that is meant to help pre-retirees and retirees better understand common planning issues before the age of 65 in greater detail.
SOURCES:
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