Now that our second child is about to finish college, my husband Paul and I have shifted our financial planning strategy to focus on retirement. Just a few years ago that prospect was too far in the future to think about, but now we are having almost as much fun thinking about what we might do when we retire as what we might do if we won the lottery. Paul is the lucky one so he buys the tickets – I assume he would share the winnings with me.
I am ashamed to admit that, despite the fact that I’ve worked in health policy almost my whole career, I have not focused on health care coverage as we begin to contemplate retirement. If we were to retire at age 62 for example, we would not qualify for Medicare, so we had better get a good handle on our options.
The Deloitte Center for Health Solutions’ 2015 Survey of US Employers shows that my chances of having retiree coverage are the best if I am working for a large company in the health care industry. More than half (54 percent) of respondents to our survey said they offer retiree health benefits that cover medical costs to any former US employees that have retired from the company. But, this differs by employer size and industry:
And, it may be quickly going away. Twelve percent of employers are no longer offering retiree coverage as a strategy to manage total health care costs for their company, and 38 percent are interested in discontinuing it.
So what are the options if our employers do not offer retiree coverage?
My mind went immediately to coverage on the public health insurance exchanges. When I worked at AARP in the run up to health reform’s passage, the association was laser focused on getting better availability of coverage for people age 55 to 65 passed. The industry and policymakers have naturally focused on enrolling younger people into exchange plans to have a stable risk pool, but the question of whether older people have better options is a good one, too.
To me, the bottom line on that question is that early retirees do have options they might not have had before health reform. But, even if a 60-year-old can’t be charged more than three times what a 20-year-old pays, premiums are still likely to be expensive, especially if retirees do not qualify for subsidies. And even after paying premiums, out-of-pocket coverage is likely to be significant as the most common benefit packages contain significant deductibles and cost sharing. Some estimates project that the average couple that retires at age 62 can expect to spend $17,000 a year on out-of-pocket health care costs until they enroll in Medicare. According to the Kaiser Family Foundation’s Health Insurance Marketplace Calculator, a 62-year-old making $51,000 (the average US income) who does not use tobacco can expect to pay about $672 per month – adding up to more than $8,000 per year.
The issue of retiree coverage for people who have Medicare coverage has been thrown into the spotlight lately. The US Centers for Medicare and Medicaid Services (CMS) first proposed, and will now phase in, a new payment policy for Medicare Advantage (MA) plans sponsored by employers – so called Employer Group Waiver Plans (EGWPs).
EGWPs exclusively serve employer/union groups and are either offered through negotiated arrangements between the MA health plan and employer and/or union groups or are offered by the employer and/or union directly. As of 2015, approximately 19 percent of MA enrollees were covered by these plans.
My former colleagues at the Medicare Payment Advisory Commission (MedPAC) have been focusing in on EGWP payments for several years, noting that because of the way these plans are structured and marketed, they do not have the same competitive pressure as typical MA plans to submit low bids. MedPAC calculated that, in 2012, margins were substantially higher for EGWPs (7.2 percent) than for other plans (4.4 percent).
In its notice of payment changes earlier this year, CMS proposed to cut payments to EGWPs. Health plans and employers quickly reacted, saying they believed the changes might weaken retiree coverage. Many stakeholders also said that employers had already committed to the benefits they are covering in the upcoming plan year and there is no time to adjust them to account for the agency’s new approach. Responding to these concerns, CMS will move to the new approach of setting rates in 2017, as planned, but it will adjust bids only half way toward the new pay rates in the coming year, then cut pay the rest of the way in 2018.
Regardless, employer coverage for active and retired workers remains an attractive benefit. Recent CBO projections indicate that employer coverage is still a major contributor to overall health coverage and is likely to only gradually erode over time. But, findings like those in our employer survey that show retiree coverage is an area for economizing and the increasing emphasis the federal government has on containing costs suggests that retiree coverage might erode more quickly than coverage for active workers.
Paul and I will take health coverage into account in our retirement planning. We definitely will put plenty aside to pay for health care – whether buying coverage ourselves or for the likely significant out-of-pocket costs we will face even if we have coverage.