How Delayed Retirement Impacts Health Insurance Costs

Every day, 10,000 baby boomers turn 65. And although the median retirement age is about 62, the share of people over 65 who continue to work has been steadily growing for decades. In other words, the workforce is aging.

Older employees are highly valued for their institutional knowledge, skill sets, mentorship abilities and experience. But there’s another side to that coin: Employer health care costs are higher when the workforce is older. For workers age 65 or older, health care costs are twice as high as costs for workers between the ages of 45 and 54.

If your business has fewer than 20 employees, you can generally count on Medicare to provide primary coverage for your employees over 65. If your workforce is larger, though, you’re out of luck — you have to offer group health benefits to employees uniformly regardless of age or Medicare eligibility, and Medicare will be secondary to your employer-sponsored plan.

So, while employers obviously want to avoid the brain drain that comes with a mass exodus of older workers opting to retire, that effort has to be balanced with the need to control the cost of health care benefits. Here are three approaches to keep in mind.

Consider a Consumer-Driven Health Plan Option

You can incorporate a high-deductible health plan (HDHP) as an option in your benefits package and sweeten the deal with a contribution to employees’ health savings accounts (HSA). Be sure to help employees understand that the HDHP/HSA option isn’t just for young, healthy people: Out-of-pocket caps mean consumer-driven health plans can be a great choice for people with very high health care costs, too.

As with any employee benefits, it’s essential to ensure that offerings are uniform, without any form of age discrimination. And it’s also important to keep in mind that higher-deductible health plans can shift costs onto workers — which can, in turn, cause employees to delay their retirement. According to a 2018 Employee Benefits Research Institute survey, 30 percent of workers who reported an increase in health care costs indicated they were delaying retirement as a result.

Focus on Wellness

You can support employees’ health as they age by seeing that your employer health care benefits package includes a focus on wellness — and not just physical wellness, either. Complete your offerings with workplace financial wellness programs, a policy of automatically enrolling employees in the company retirement program or an employer matching benefit that makes saving for retirement a more attractive option for employees.

Although there are many positive reasons workers choose to delay retirement — including improved health and a desire to remain active and productive — the primary reason people work past retirement age is a lack of adequate savings. Helping your employees reach their financial goals will help ensure that older workers who remain on the job are doing so because they want to, not because they have to.

Offer Alternative Work Structures

You can also explore the possibility of offering workers the option to transition to part-time work, job-sharing or consulting instead of having to choose between full-time work and retirement. Older workers are more likely to value flexible work schedules, and it might end up being a win-win situation for you and your employees.

Employees who aren’t yet eligible for Medicare but who want to switch to a part-time schedule might be hesitant to make the change due to concerns about losing eligibility for full-time employee benefits. Let the Affordable Care Act’s consumer protections reassure them: Premiums for older enrollees can’t be more than three times the premiums for younger enrollees, and premium subsidies help make coverage more affordable for people whose income doesn’t exceed 400 percent of the poverty level. Out-of-pocket costs are capped (and capped at an even lower level for people with lower incomes, depending on the plan they select), and every plan covers the 10 essential health benefits and preexisting conditions. As an added bonus, if an employee ends up fully retiring before age 65, they can keep using their individual market plan as their health insurance after retirement.

Now, none of these options will change the fact that many older employees will prefer to continue working full time and retain their employee benefits. But retirement is one of those big life transitions that everyone goes through at one point or another — so when you’re outlining your options for older workers, it pays to do it right. Whether you’re just thinking of adding a new office wellness program or overhauling your entire benefits package and retirement policies, these strategies can make controlling health care costs manageable for employers and older employees alike.

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