Early Retirement a Scary Health Option

As reported on Money.CNN.com on Tuesday, June 28, 2011 by Parija Kavilanz.

Employers are getting out of the retirement insurance business. This could be worrisome for American workers who want to retire, before hitting the Medicare-eligible age of 65.

A majority of large employers today offer some form of retiree insurance — both to early retirees and to retired workers who are Medicare eligible.

But a new survey of 250 large companies by Towers Watson shows that many of them have pared back on their retiree insurance plans and others are planning to discontinue them permanently.

Stuart Alden, Towers Watson’s senior health care consultant, said these changes are “significant” 47% of employers polled for the Towers Watson’s annual retiree benefits survey said they’ve already made changes to retiree insurance plan designs. These include reducing coverage and shifting more of the cost-sharing to early retirees.

When asked what alternatives to early retiree plans employers were considering, 42% said they’re considering terminating early retiree plans and will encourage workers to consider buying health insurance through “health exchanges” instead.

Under health reform, each state has to create “health exchanges,” or an insurance marketplace by 2014 where individuals and small businesses will be able to buy subsidized health insurance.

The exchanges are expected to offer four levels of coverage — bronze, silver, gold, and platinum — each with varying prices and coverage. The companies polled in the 2011 Towers Watson collectively employ 2.8 million full-time workers and have 1.1 million retirees enrolled in their retiree medical programs. Many employers currently subsidize retiree insurance coverage.

The companies pay part of the cost of coverage and the retiree pays the balance. But now, companies that are planning to discontinue these plans by 2014 — and who want to maintain goodwill with workers — say they’ll give their employees money to buy coverage through the exchanges instead.

Many employers may not offer any money at all, said Alden. “We can’t say exactly who will pay more or less under reform compared to employers’ [early retiree] coverage,” said Alden.

This will leave workers on the hook for shouldering the full cost of buying insurance plans through exchanges.

But how much more it could cost workers to buy retiree insurance from exchanges is not clear because prices for the different plans in the exchanges are still unknown.

Retirees are expensive to insure: Retiree insurance plans are typically more expensive for companies to offer than insurance plans for active workers, said Alden.

On average, these plans can be 25% to as much as two-times more expensive than health care plans for active employees, depending on the age and health of the retiree, he said.

If there is a silver lining for workers who are seriously contemplating early retirement, it’s that most companies who offer them today aren’t immediately ditching them.

“Retiree medical benefits are still part of the attraction employers use to hire new workers,” said Alden. But that could change as we near 2014, he said.

If you (or someone you know) have questions or concerns about estate planning, please contact the Law Offices of Mitchell S. Ostwald at 916.388.5100 or email us at info@molaw.com