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Retiree Health

Why Employers Care

Providing retiree health benefits has been a major challenge for employers. Employers who contribute funding toward retiree health must account for the financial liability due to FAS 106 and GAS 45. For pre-65 retirees, obtaining coverage is a challenge as well. Many employers eliminated or capped retiree medical in the late 1980s and 1990s.

Employees who retire before they are eligible for Medicare coverage are costly to insure for employers, and may find it difficult to secure coverage on the individual market prior to 2014. The Patient Protection and Affordable Care Act (Affordable Care Act) includes a provision to create state-based health insurance exchanges (exchanges) to expand health insurance coverage by 2014. Many employers believe that the exchanges could play a strong role in providing health care coverage to retirees. Under ACA regulations, employers can offer stand-alone HRAs to retirees but doing so may make people in retiree-only HRAs ineligible for premium tax credits and cost-sharing reductions on the health insurance exchanges. Those retirees eligible for Medicare still face complex decisions regarding their care and what type of ancillary plan is best for them.

In the latest Towers Watson and the Business Group survey, 60% of employers offer some financial support or access to retiree health insurance for current retirees. However, for new hires in 2014 and 2015, only 67% of employers will not offer financial support or access to retiree health insurance.

For those employers that are interested in a retiree exchange, please visit our below Private Health Insurance Exchange toolkit.

What Can Employers Do?

Some large employers are adopting creative strategies to address health care coverage in retirement, such as:

  • Adjusting age and service requirements;
  • Providing "access-only" plans in which retirees bear all costs, but can purchase group coverage;
  • Contributing to health reimbursement arrangement for employees to purchase coverage on the individual market upon retirement; or
  • Funding a Voluntary Employee Beneficiary Association (VEBA).

In addition, employers can provide the following services to their employees and retirees to help prepare for retirement:

  • A "decision navigator" to help select the right type of coverage.
  • Offer the same type of plan for pre-65 retirees and active employees.
  • Start educating employees on the cost of health care in retirement as soon as possible.

Relevant Tools and Resources Include:

Other Retiree Health Resources

Page last updated: January 29, 2014

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