The issue of well being care in early retirement retains employees within the office
Many employees who want to retire instead stay on the job so they can keep their health insurance. Employers looking to ease their transition can search private health exchanges and the Affordable Care Act (ACA) public market exchanges for ways to subsidize coverage without having to maintain a group health plan for former employees.
According to the Society for Human Resource Management (SHRM) Employee Benefits Survey Report 2017, 19 percent of SHRM members have offered some type of health insurance for retirees. In 2013 it was 23 percent.
“Private sector employers are not required to offer health benefits to retirees, and even if they do offer such benefits, employers can reduce or terminate this coverage unless otherwise agreed,” reported SHRM Online last year. However, health benefits for pensioners who are the subject of a collective agreement cannot be reduced without renegotiation.
The decline in health insurance for retirees is making it harder for employees to find a way into early retirement and feel confident that they will find affordable coverage by the time they are Medicare eligibility, said Julie Stone, senior health and benefits consultant at the global consulting firm Willis Towers Watson. This, in turn, could adversely affect employees in the age cohort just below the over-50s group. “If their older colleagues stay at work because they feel they need employer-sponsored health insurance, these younger people could experience career stagnation or feel compelled to switch employers to get a promotion “she remarked.
“More and more employees are postponing retirement, many for financial reasons,” said Kevin Mahoney, senior institutional consultant at The Mahoney Group of Raymond James, a financial advisory firm in West Nyack, NY
While older workers who love their jobs are typically engaged and productive, “those who still work because they cannot afford to retire are less healthy, stressed out and out of work excluded, “Mahoney said during his June presentation at the SHRM 2017 Annual Conference & Exposition. “The ones who don’t want to be there are the ones you don’t want to keep.”
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In the pre-Medicare retirees – generally younger than 65 – the increase in retirement healthcare costs rose on average about twice that of Medicare participants, research by Willis Towers Watson shows. This poses challenges for organizations wishing to support early retirees in the healthcare sector.
Among employers the consultancy surveyed last year, 72 percent planned to make “moderate to significant” changes to pre-Medicare health benefits by 2020. For example, many are moving their Medicare-eligible retirees to private exchanges such as Willis Towers Watson’s OneExchange, Mercer’s Mercer Marketplace, and Aon Hewitt’s Aon Retiree Health Exchange. By negotiating with insurers participating in the exchange, employers can determine the amount of subsidies they wish to provide to cover the coverage that retirees acquire.
Other employers will fund health reimbursement arrangements (HRAs) that allow early retirees to purchase plans through the ACA’s marketplaces. HRAs are funded exclusively by employers with pre-tax dollars.
Economist Sita Slavov, professor of public policy at George Mason University in Arlington, Virginia, has studied the impact of early retirement insurance offerings on the workforce.
“One thing we speculated about when we were writing these papers was that basically retirees’ health insurance is now available through the [ACA’s] Exchange, could employers who offer it stop offering it? “asked Slavov.” There seems to be evidence that they did that. “
A survey published last year by the nonprofit Kaiser Family Foundation found that 17 percent of large companies (with 200 or more employees) providing health care services to retirees were considering changing the way they offer retirement insurance, and possibly Provide subsidies for retirees to purchase coverage through the ACA’s marketplace – either major medical guidelines for retirees aged 65 and over or supplementary “Medigap” guidelines for those eligible for Medicare.
Whether private or public, the exchange model can benefit both employers and retirees, say experts. The cost to employers of annual subsidies for retirees acquiring health policy through an exchange is limited and predictable. In the meantime, retirees can choose between different plans and tariffs.
Using HSAs to prepare for retirees’ health expenses
Another strategy is to help employees use Health Savings Accounts (HSAs) to prepare for future medical expenses after retirement.
“Less than 5 percent of American workers have access to and save on a tax-privileged basis on future medical expenses – including HSA-qualifying expenses such as employer-sponsored Medicare and long-term care insurance and / or acute care prescription medical expenses for retirees out of the pocket for drugs and long-term care, “blogged Jack Towarnicky, executive director of the Chicago-based Plan Sponsor Council of America and Employers Group.
To resolve the retirement savings crisis, “offer your employees an HSA-qualified health insurance option and offer your retirees (however you choose to define the retiree) a Medicare Supplement insurance option that pays all retirees,” advised he.
Because many employees rely on their HSA contributions to meet current medical needs, employer contributions in their accounts can help them build savings for post-retirement expenses.
Still an asset to boast about
However, not all employers prefer to ditch their retirement group health insurance plans in favor of an exchange-based approach. Julia Hicks, HR director at Wesleyan University in Middletown, Connecticut, said the university has offered early retirement health insurance on a group plan for 25 years, with the university paying two-thirds of the premium.
“While it may not be high on the priority list when looking for employment, it is seen as a very attractive and valued asset,” said Hicks. In terms of providing a recruiting advantage, “this is certainly a significant plus.”
Duke University and its affiliated health system, which is the second largest private employer in North Carolina with 37,000 employees, have not shaken their early retirement health insurance. Kyle Cavanaugh, Duke’s vice president of administration, said reporting was an integral part of the organization’s compensation.
“By and large, the value proposition of coming to work for a facility like Duke is total compensation, including benefits, and an integral part of that is health care” for active employees and retirees.
Duke offers its retirees coverage under its group health plan, with the percentage of the retiree’s premium calculated based on the “rule of 75”. The sum of the age and years of service of the pensioner must add up to 75. After that, the university pays 60 percent of the individual premium and the retiree pays 40 percent. Duke also pays at least 50 percent of the premiums for spouses and other dependents.
The secret to balancing a company’s ability to respond to changing political winds while maintaining a degree of stability for employee benefit, according to Cavanaugh, is to realize that strategic planning needs to be done more frequently during changes must be implemented gradually.
“I can say with confidence what we will do in 2018 and with pretty good confidence what we will do in 2019,” he noted. “I become less and less confident as we go further, and much of it will depend on what happens nationally,” given possible changes in government health care benefits, particularly the scope of Medicare and federal grants for ACA policies.
Meanwhile, Cavanaugh said he plans to “respond to our employees and retirees and continue the benefits for some time.”
Related SHRM items:
Gradual retirement gets a second look at SHRM online benefits, July 2017
Can an employer reduce or cancel benefits for retirees ?, SHRM Online Employment Law, October 2016
When Employers Lose Coverage, Retirees Turn to Private Exchanges, SHRM Online Benefits, September 2013
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