When you or your spouse retires from a company or a union, you may be offered
health insurance as a retirement benefit – a retiree health plan.
While useful after you turn 65 (and are eligible for Medicare), these policies
are critical for those retiring early (before 65), since you'll need health
coverage and it will be very expensive.
How does a Retiree Plan Work?
A retiree health plan coordinates with Medicare much like a Medigap policy (a
Medicare supplement insurance) – meaning that if you are 65 years old or older
you must be enrolled in Medicare Parts A and B.
Retiree plans, however, are not Medigap policies and are not designed in the
same way. When you have retiree insurance, Medicare will pay first (primary) and
your retiree insurance will pay second (secondary). Medicare is billed first and
pays for services it covers without regard to what the employer insurance
covers. Once Medicare has processed a claim, the employer-based insurance will
process it and pay for any services it covers.
Retiree Plans Can Be Valuable Assets
Retiree health plans can be very valuable to your financial health. About one
fourth of retirees age 65 or older were covered by a company health plan in
1999, according to the federal government. You should keep your retiree plan if
you can afford it and it covers the gaps in Medicare. If it covers prescription
drugs, it is very valuable, since Medicare doesn't pay for prescriptions.
Evaluating Your Retiree Health Plan
First and foremost: You should speak with your employee benefits office about
the following issues. It is important to know what benefits your plan provides
and how your retiree policy works with Medicare.
- In most cases, retiree health insurance requires that you be signed up for
Medicare Part A and Part B policies.
- Your spouse may or may not be covered by the retiree health plan
- The coverage details of retiree plans vary widely.
- Most cover the same medical services that are covered by Medicare
- Some cover prescription drugs, eyeglasses and dental care – services not
covered by Medicare – which can make the plan very useful.
- A retiree plan may provide you with traditional fee-for-service insurance or
you may be covered through a health maintenance organization (HOM) or a
preferred provider organization (PPO).
- Be sure you understand your retiree plan's deductible and co-payment amounts.
- Ask what would happen if you were to move to another area or state.
Coverage under a retiree plan varies greatly. However, many retiree plans
provide better coverage than an individual Medigap insurance plan or Medicare
Advantage insurance.
Think carefully before dropping it even if it is expensive. You may not be able
to get it back.
However, you should also understand that most employers could change the
benefits of their health plans, the premiums you pay and/or drop your coverage
altogether at any time due to a disclaimer clause in their policies. In some
cases, these disclaimers are not communicated to the employees. Be sure to ask
your employee benefits coordinator what your choices might be if that happens.
