David E. Williams

Planning for Retirement: How to Help Employees with Health Care

The American workforce is rapidly getting older. According to the Bureau of Labor Statistics, 19.2 percent of workers were aged 65 or older in June 2017. This has many implications for employers, not least for companies with a relatively older employee base. More employees will be planning for retirement in the next few years than ever before.

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Because of rising costs, fewer employers every year offer retired employee health benefits. The Kaiser Family Foundation (KFF) explained that as of 2013, just 28 percent of companies did this. For those businesses that continue to offer retirement health benefits, there are some important facts to keep in mind:

Pre-65 Health Benefits Are Expensive

According to KFF, retirement health care benefits are twice as expensive for employees who retire prior to age 65 because such insurance is primary, not secondary. These companies are therefore incentivized to keep older workers active on the payroll until Medicare takes over at age 65.

Consider Retirement Health Reimbursement Accounts (HRAs)

Employees planning for retirement can take advantage of HRAs. According to EIT Benefit Funds, employers may contribute to retirement HRAs on an ongoing basis, or on an hourly basis if a collective bargaining arrangement is in place. Funds become available for qualified medical expenses once employees reach retirement age and stop working.

Consider Self-insured Employer Plans to Supplement Medicare Benefits

These plans are much less expensive than traditional retirement health plans, because they’re secondary to Medicare, meaning that the plan pays after Medicare covers part of the bill. Employers typically take a “carve-out” approach, which means the business contribution to health insurance claims kicks in at Medicare’s payment limit.

Use Medicare Advantage Plans

Employers have the option of contracting with Medicare to offer Medicare Advantage plans, which supplement the benefits offered by traditional Medicare. Employers are incentivized to get involved with these plans by relatively high Medicare payments to group plans, thereby alleviating some of the cost burden associated with providing the benefit.

The most important fact to keep in mind is that retirement is inevitable, so planning for retirement should be part of every annual review of benefits, especially for employees in the 45-55 age range. The traditional “gold watch” is no longer a fixture in the world of retirement benefits. Far more valuable to employees are solid retirement packages, especially reliable health benefits, which are worth their weight in gold.

David E. Williams is president of Health Business Group, a strategy consulting firm serving clients in technology-enabled health care services, pharmaceuticals, biotech, medical devices and software. He is frequently quoted in the media on the business of health care and is the author of the Health Business Blog. David sits on the board of both private health care companies and nonprofits.