Once upon a time, people worked for the same company for most of their careers, and when they retired after 30 or 40 years, they qualified for a pension and health care coverage supplied by their employer. They entered their golden years secure in the knowledge that their medical needs would be covered, and their costs would remain steady.These days, such arrangements are few and far between, but some companies do still offer retiree medical coverage. According to a Kaiser Family Foundation survey, only about 30 percent of firms with more than 200 employees offer full retiree medical benefits. Working for an employer that offers retiree benefits puts you in a good position to manage your health care, but it doesn’t mean that you are completely covered forever or that things cannot change. Before you make a decision about which type of health care coverage to carry, consider these five facts.
Retiree Coverage Can Change
You retire with excellent coverage, but a few years later, the premiums go up, the network changes and suddenly the services that were accessible just a short time earlier are now not covered or covered at a lower level. What happened?
If you opt to enroll in your employer’s retiree health plan, know that the plan can — and probably will — change. The only way that your coverage will stay exactly the same is if the carrier or your employer tells you, in writing, that it will not. Few policies promise to stay exactly the same in perpetuity, so you should expect an increase in premiums and other changes going forward — changes that could make your retiree coverage cost prohibitive or inadequate for your needs. Carefully read your plan’s Summary Plan Description to determine how your policy works, and whether the plan reserves the right to make changes.
Retiree Coverage Impacts Medicare
When they turn 65, most Americans enroll in Medicare, the federally operated health insurance program. However, in many cases, Medicare does not provide enough coverage, and co-pay costs can be high. For that reason, many beneficiaries opt to purchase supplemental coverage to provide access to additional services and lower out-of-pocket costs.
If you have a retiree health insurance plan, read the materials carefully to ensure that you follow the proper procedures regarding Medicare. Some plans require beneficiaries to enroll in Medicare Part A and B when they turn 65, and will only pay for services after Medicare has covered its portion. In rare cases, your policy may supersede Medicare, and you won’t need to enroll right away.
You retire with excellent coverage, but a few years later, the premiums go up, the network changes and suddenly the services that were accessible just a short time earlier are now not covered or covered at a lower level. What happened?
If you opt to enroll in your employer’s retiree health plan, know that the plan can — and probably will — change. The only way that your coverage will stay exactly the same is if the carrier or your employer tells you, in writing, that it will not. Few policies promise to stay exactly the same in perpetuity, so you should expect an increase in premiums and other changes going forward — changes that could make your retiree coverage cost prohibitive or inadequate for your needs. Carefully read your plan’s Summary Plan Description to determine how your policy works, and whether the plan reserves the right to make changes.
Retiree Coverage Impacts Medicare
When they turn 65, most Americans enroll in Medicare, the federally operated health insurance program. However, in many cases, Medicare does not provide enough coverage, and co-pay costs can be high. For that reason, many beneficiaries opt to purchase supplemental coverage to provide access to additional services and lower out-of-pocket costs.
If you have a retiree health insurance plan, read the materials carefully to ensure that you follow the proper procedures regarding Medicare. Some plans require beneficiaries to enroll in Medicare Part A and B when they turn 65, and will only pay for services after Medicare has covered its portion. In rare cases, your policy may supersede Medicare, and you won’t need to enroll right away.
Your Coverage Can End
It’s not uncommon for retiree health plans to only cover former employees until they are eligible for Medicare. In other cases, coverage ends due to financial issues within the company, company policy changes or even the dissolution of the company. It’s important to understand that your retiree coverage can end, except in the very unlikely event that your employer promised in writing that you would be covered regardless of circumstances.
If your coverage ends, you generally have several options. If you are over age 65, you can enroll in Medicare or purchase a supplement to replace the coverage; if you’re seeking new coverage because your retiree plan ended, you do not have to wait until the annual open enrollment period to do so. If you are under age 65 and retired early, you can usually get insurance via COBRA, a private health insurance plan or your spouse’s employer until you turn 65.
Your Spouse Isn’t Necessarily Covered
Speaking of your spouse, before enrolling in your company’s retiree plan, confirm whether he or she is covered or not. Even if he or she was covered under your employer plan, that coverage may not continue after you retire. If you are both over age 65, Medicare is an option; for anyone under age 65, you may need to explore other coverage options.
Early Retirement Can Cost You More
If your company offers retiree health benefits and you choose to retire early — before age 65 — read the plan documents carefully to determine whether there are any limitations or restrictions that could impact your coverage. For example, the policy may have a time limit, reducing how long you can be covered under the plan. If you retire early, you could cut into the amount of time you’ll have coverage, meaning that you will need to plan for later on.
Planning for your health care coverage after retirement is an important piece of the financial puzzle, and having insurance through your former employer can certainly ease the burden. However, you must understand exactly how the coverage works and its impact on your finances and future coverage — or face some unpleasant surprises.
It’s not uncommon for retiree health plans to only cover former employees until they are eligible for Medicare. In other cases, coverage ends due to financial issues within the company, company policy changes or even the dissolution of the company. It’s important to understand that your retiree coverage can end, except in the very unlikely event that your employer promised in writing that you would be covered regardless of circumstances.
If your coverage ends, you generally have several options. If you are over age 65, you can enroll in Medicare or purchase a supplement to replace the coverage; if you’re seeking new coverage because your retiree plan ended, you do not have to wait until the annual open enrollment period to do so. If you are under age 65 and retired early, you can usually get insurance via COBRA, a private health insurance plan or your spouse’s employer until you turn 65.
Your Spouse Isn’t Necessarily Covered
Speaking of your spouse, before enrolling in your company’s retiree plan, confirm whether he or she is covered or not. Even if he or she was covered under your employer plan, that coverage may not continue after you retire. If you are both over age 65, Medicare is an option; for anyone under age 65, you may need to explore other coverage options.
Early Retirement Can Cost You More
If your company offers retiree health benefits and you choose to retire early — before age 65 — read the plan documents carefully to determine whether there are any limitations or restrictions that could impact your coverage. For example, the policy may have a time limit, reducing how long you can be covered under the plan. If you retire early, you could cut into the amount of time you’ll have coverage, meaning that you will need to plan for later on.
Planning for your health care coverage after retirement is an important piece of the financial puzzle, and having insurance through your former employer can certainly ease the burden. However, you must understand exactly how the coverage works and its impact on your finances and future coverage — or face some unpleasant surprises.
About the Author: Wiley Long is the President of Medigap Advisors (www.medigapadvisors.com). He writes extensively on ways to intelligently plan for your financial and health care future.
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