According to the latest industry reports, employer payments for health insurance continue to decline.
In the past, many retirees could rely on private or public health benefits to receive additional health-care pensions by receiving Medicare, but this is becoming less and less common.
Employer-provided health benefits can provide significant coverage of Medicare gaps. Additional coverage benefits can reduce Medicare-related cost-sharing requirements. Restrictions on the amount that can be spent out of pocket, often combined with additional coverage, are also often useful for retirees.
In general, additional medical and medical benefits for retirees, sponsored by a private or municipal employer, have helped many retirees cope with the high medical costs that often arise after retirement.
However, the Kaiser Family Foundation recently reported that the number of large private employers who are considered employers with 200 or more employees offering retirement benefits has increased from 66% in 1988 to 23% in 2015.
Companies that continue to provide health benefits to pensioners have made changes to reduce the cost of benefits, including:
Set limits on the amount of financial liability of the supplier
Transition from defined payment plans to defined contribution plans
Provide medical benefits to retirees under Medicare Advantage contracts
Create benefit programs through private health insurance exchanges
Public employers are also not immune to this trend, but the type and level of insurance coverage provided by most states is significantly different from the retirement age health insurance offered by large companies.
Unlike many private employers, state governments continue to provide a certain level of retirement benefits to attract and retain talented workers, according to a report titled ‘Retirement Health Plan Costs’ published by The Pew Charitable Trusts and John D. and Catherine. MacArthur Foundation in May 2016
Because pension benefits make up the majority of state PPP commitments, many states have made policy changes to meet future commitments. Factors such as the date of appointment, retirement date or eligibility, including the minimum age and minimum year of service, are now used by the states to change or restrict the rights to health plans.
Overall, between 2010 and 2013, governments saw their PPP commitments fall by 10 percent from $627 billion after adjusting for inflation. This may sound contradictory, but the decline is due to slower increases in health care costs, coupled with cost-cutting benefit adjustments.
Taking one state as an example, California’s recent budget showed that health care for retirees costs the state more than $2 billion a year, an 80% increase over the past 10 years. Although things have changed recently, California has previously been one of 18 states that have not put anything off to cover future health care costs of $80.3 billion in retirement.
It should be noted that pensioner health plans are usually funded by the plan’s sponsors on a distribution basis, which means that funds earmarked to pay current and future health obligations are taken from current assets and are not reserved in advance. This is significantly different from pension schemes under ERISA, which are governed by funding rules.
In response to OPEB’s unfunded liabilities in California, employees and staff are now contributing health care costs to future retirees. The state is also adjusting employee contributions by $88 million and paying an additional $240 million to fund future health care pension costs. The changes will affect pensioners as well as public and private employers.
In general, payments to employers on pensions, which were once an important addition to the health insurance of pensioners, continue to decline.
Potential consequences of reduced pension payments to the employer
Many baby boomers who are currently covered by retiree health insurance plans and plan to rely in the future on health benefits paid by the employer are likely to be disappointed to learn that these benefit plans can be modified or removed. Retirement plans managed by ERISA usually have a “preservation of rights” clause that allows the plan sponsor to modify or terminate the plan in full or in part. Many private and public employers are reducing or eliminating health benefits for retirees because of rising premiums, rising health care costs and longer life expectancy.
Since the early 1990s, there have been numerous cases in which unforeseen changes in pension benefits and end-of-work health benefits have led to litigation. The main problem usually lies in the preservation of language rights and/or the language of collective agreements for employees, which are covered by a trade union agreement concerning medical benefits for retirees.
Beneficiaries who have questions about their retiree’s health benefits should contact their plan sponsor to learn more about the specific benefits available to them, and have a contingency plan to upgrade their health insurance to Medicare if they are considering early retirement or want a better understanding of future benefits. .