Don't bet on your retiree health care

By Bankrate.com

As the first wave of baby boomers makes the transition from career track to riding the retirement rails, here's a warning from those getting ready to push off from corporate life: Don't believe everything you're told, even if you have it in writing, especially where post-retirement health insurance is concerned.

From corporate penthouses to state legislatures, a move to cut and, in some cases, eliminate retiree medical benefits altogether has caught hold. It's leaving upcoming retirees with a dilemma many don't even realize they're facing: How are they going to pay for future medical needs not covered by health insurance or Medicare? For many, the answer will redefine their retirement.

Benefits disappear

Ron Harper started working for Allstate Insurance in 1989 after 22 years in the grocery business. As a representative of the insurance giant, Harper had an enviable future retirement, with a 401(k), generous pension program and health insurance for himself and his wife. But when the company restructured its employment policies, Harper and more than 6,000 fellow agents found most of their benefits had been stripped away.

Although he still sold Allstate Insurance, he was no longer considered a company employee. Instead, he and the others were reclassified as "independent agents," and they lost their company pension plan and post-retirement medical-insurance benefits. Now Harper, who once paid $130 a month for family medical-insurance coverage, has a self-paid policy with a whopping $5,450 deductible, supplemented by a health-savings account he has established.

When, for example, Harper's wife underwent a recent colonoscopy, it cost the couple about $3,000 out of pocket. Harper observes that one downside to losing medical coverage is that many don't have the money to pay for preventive health care, so it falls by the wayside.

Now 55, the Thomson, Ga., resident publishes a newsletter for Allstate agents and is one of more than 6,000 plaintiffs in an unresolved lawsuit against the company.

Harper says his medical insurance premiums run him about $500 a month, with another $500 going into his medical-savings account. "I don't see how I can ever retire," he says.

The decline of retiree health benefits

Courtney Coile, an assistant professor of economics at Wellesley College and a research associate of the Center for Retirement Research at Boston College, says the number of companies with 200 or more workers that offer retiree health insurance fell from 66% in 1988 to 33% in 2005.

The trend continues in both private industry and government. "Future retirees are less likely to have retiree health insurance and those who (do) are likely ... to pay more for it," Coile says.

Health insurance doesn't come cheap, even when you're young and healthy. But as you age, becoming more prone to disease and illness, it skyrockets. Until Medicare eligibility kicks in at 65, many Americans who retire before then are left with few health-care options.

Health-insurance backstops

What can you do if you're contemplating retirement before you reach Medicare eligibility and you lose health-insurance benefits?

Here are some expert suggestions:

• Check to see if you qualify for another group plan, perhaps through your spouse's employer or a fraternal organization. Can you join a professional or social group that carries member insurance? Find out. It may be worth becoming a part of the organization simply for the health insurance.

• Like Ron Harper, buy an individual plan with a high deductible. Many dislike individual policies because they often come with high deductibles and pay for little or no routine care. But even if you set aside the money you save by not paying the premiums and don't spend it, if faced with a catastrophic illness, you may quickly run through your savings and find yourself with a mountain of unpaid medical bills.

• Don't change jobs unless you know the status of your health insurance. Does your new company offer it? What will it cost? Can you qualify for COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) benefits? Research your rights under HIPAA (Health Insurance Portability and Accountability Act of 1996) before changing insurers.

• Start living a healthier lifestyle right now. Don't neglect preventive medicine. Have annual physicals and other routine tests as you age. Keep your teeth and gums in top-notch condition. Exercise, eat right and quit smoking. The healthier you are when you retire, the less medical attention you will need.

• Save cash to cover health-care costs that might arise during the gap between retirement and Medicare eligibility. And that doesn't mean throwing coins in a big jar. It means knuckling down and putting away some real money. Experts say retired couples may need anywhere from a quarter-million to a half-million dollars to cover post-retirement out-of-pocket medical expenses.

• This one's tough, especially if you've been pricing cruises and breaking in new golf shoes: Put off retirement. Yeah, it's derailing a dream, but things change. Health and health-care costs are part of that change. Sadly, there's no guarantee your company's health insurance won't change, too.

Government workers not immune

If you think you're safe from health-care plan changes because you work for the government, think again. Government employees are also getting nasty surprises. Even veterans aren't exempt.

Retired military families recently were dismayed to hear proposed raises to Tricare, the managed-care insurance program for service members and their families, would double current premiums. While it's not yet a done deal, many say the rate increase has a better chance of pushing through during this off-election year. While it's still low in price compared with "civilian" health care coverage, many fear this is simply the beginning of an upward spiral of costs.

And Wellesley's Coile adds this food for thought: "The central issue is that health care costs are rising rapidly, at a faster rate than either (consumer) prices or income. The difference may be only a few percentage points in any given year, but over time, the differences really add up."

• Video: Long-term-care insurance

Health-care costs in general have risen at an average rate of 5.1% per year above inflation for the past 15 years. By law, Medicare premiums must cover 25% of total program costs, so as health-care costs continue to rise, so will premiums. As an example, says Coile, "Medicare part B premiums have risen rapidly in recent years, from $50 per month in 2001 to $93.50 in 2007."

If you haven't punched your last timecard yet, know exactly what's happening with your health-care coverage before you retire. You may find that working longer, practicing preventive medicine and saving more will still allow you time to swing that golf club down the road.

This article was reported and written by Carole Moore for Bankrate.com.

Published June 19, 2007