Over the past 25 years, the percentage of companies with 200 or more employees that offer retiree health coverage has dropped from 66 percent to 28 percent. That shift has already left one in five workers without retiree health benefits.
Chances are your benefits clients are among the growing number of employers who have shifted – or plan to shift – the responsibility for covering health care costs in retirement to their employees. Clearly, millions of American workers will find themselves financially vulnerable in retirement.
If you offer health savings accounts (HSAs) or health reimbursement arrangements (HRAs) you might be able to address this problem, by giving employers a way to use proven benefits vehicles to help employees cover the post-retirement health care costs not covered by Medicare. Here are ideas about three ways to do that.
1.Give workers accurate information about what their post-retirement out-of-pocket costs might look like.
Most Americans are unprepared and uninformed about how these costs can add up. According to a 2013 survey conducted by AARP, few adults in their 50s and 60s have begun saving for the health care costs they may incur during their retirement years. Only about one-third (36 percent) report having a plan — and savings — in place to help cover health care costs in retirement.
The Fidelity Investments Retirement Savings Assessment found that, among pre-retirees ages 55-64, nearly half (48 percent) believe they only need about $50,000 to pay for their individual health care costs in retirement. Fidelity estimates the average couple retiring today could expect to spend more than $220,000 on health care expenses over the course of their retirement. That estimate does not include the cost of long-term care or dental care.
2. Help your employer client and the employees use an HSA as retirement savings tool
Paired with the required qualifying high-deductible health plan (HDHP), an HSA can be a smart health care financing tool. A client can use it both to cover medical expenses now and to help cover future Medicare Parts B and D premiums, co-pays, and deductibles on a tax-advantaged basis. Workers ages 55 to 65 can accelerate their HSA contributions by $1,000 a year, giving them the opportunity to “catch up” on savings for retirement health care. And, if a post-65 individual is not eligible for or enrolled in Medicare, coverage under a qualified HDHP lets the individual continue to be eligible to make HSA contributions.
Speaking of contributions, the employee, the employer, or a combination of both can make tax-free contributions to the account.