With the economy currently in a downturn, people who are planning and saving for retirement are even more worried about how to make ends meet. Those that are already in retirement find it harder to ride out this bumpy downturn in the economy with the money that they have saved.
Retirees are also being affected by changes in health care insurance. Many companies are not providing the same amount of health insurance coverage as they have in the past.
An article from our partners at TheStreet.com by Gavin Magor explains why health coverage changes after the age of 65 and what you can do about it.
Retiree Health Coverage On the Decline
By: Gavin Magor - TheStreet.com
It is not just the retirees of distressed or bankrupt companies such as Bethlehem Steel, Chrysler, Ford, and GM who are finding that the health care that they had anticipated receiving in retirement will no longer be provided.
According to the Kaiser Foundation, back in 1988, 66% of retirees had company health coverage. By 2003 this had dropped to 38%, and in 2007 it was 33%.
With more companies due to announce similar cutbacks before the Medicare enrollment period, company-paid health coverage in retirement seems to be disappearing into the sunset alongside the defined-benefit pension plan.
Not so fast. The perk of health care in retirement may appear to be going away, but the reality for existing retirees and for many current employees is very different.
Early Retirees Still Covered
Despite the headlines, 30% of companies employing 200 or more, including GM, are leaving health coverage in place until retirees reach 65 and qualify for Medicare, so younger retirees have coverage. Of those companies, 23% continue to offer health care for the Medicare eligible.
The issue is that companies have taken differing approaches to the over-65 group.
Health Care Alternatives
Some companies have stopped providing health care altogether for older retirees, leaving them to obtain coverage under Medicare when they qualify. Others have taken an approach that, in essence, results in company-sponsored health care remaining.
Although there are no current statistics available to demonstrate the extent of the trend, there are several examples of traditional industrial corporations that have removed large health care liabilities from balance sheets.
Instead, companies have substituted these expenses with a smaller quantifiable amount that no longer is included as a health care liability and presents the illusion that health care is no longer provided.
If we look at GM, for example, despite the withdrawal-of-health care announcement, salaried retirees or their surviving spouse at 65 will receive a discretionary taxable increase to their pension of $300 per month. This gives a retiree complete flexibility as to where they spend this money and has been said by some to be more than fair as it represents a significant health care subsidy.
As another approach, both Chrysler and Ford retirees over 65 receive an allowance that is paid into a pooled Health Reimbursement Arrangement. This fund is administered on behalf of the company and the retiree and operates as a source of reimbursement of health care expenses. As the account is shared, either spouse can have their medical bills reimbursed from the HRA, to the limit of the balance in the account.
So, headlines aside it seems that in reality companies are continuing to provide health care, albeit in a different form. This may not satisfy the affected retiree but it is significantly better than the alternative.
Continue to read this article at TheStreet.com…
© Photo Courtesy of Kenn W. Kiser
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