Thinking outside the retirement health care solution box: Retiree reimbursement arrangements

September is often a month when Americans pause and reset their lives, including assessing their finances—summer is wrapping up, school is starting, and many benefit open enrollment periods are beginning. One piece of the financial puzzle that is especially top of mind for many Americans and their employers is retirement preparedness.

The 2021 HSA Bank Health & Wealth Index found that future financial preparedness for older Americans is a serious concern. Ninety three percent of consumers over 55 years old are worried about current or future medical bills and of those consumers, more than one third reported they rarely save money for future healthcare expenses.

This is a real problem for Americans and according to a recent study by HealthView Services, it is estimated that a healthy, average couple age 65 who retired in 2020 will spend $662,156 on retirement healthcare expenses.

One new solution designed to support employees into retirement is the retiree reimbursement arrangement (RRA). An RRA is a Health Reimbursement Arrangement (HRA) solution for employers looking to help their retirees offset healthcare costs in retirement even if they do not offer a group retiree health plan.

Offering an RRA as part of an employee’s overall benefits package can be a distinct attraction and retention tool for employers who cannot or do not want to offer a group retiree health plan.

Compared to defined benefit retiree healthcare plans, RRAs can be a more predictable and cost-effective option for employers to continue to provide for their employees into retirement.

By contributing a fixed dollar amount, employers can provide their employees with tax-free money to help them pay for Medicare premiums and other qualified medical expenses incurred during retirement.

Retirees then have the flexibility to determine the coverage they want from Medicare Advantage and Medicare Supplement plans. In some cases, the employer’s contribution to the RRA covers all costs for the retiree, while in other cases it does not, and the retiree must cover the difference. If all funds follow guidelines from the Internal Revenue Service (IRS), the contributions are also tax-deductible for the employer.

RRAs are a great way for employers who offer health savings accounts (HSAs) to their active populations to continue playing a part in their wellbeing as well as retirement and can be part of a larger focus to provide peace-of-mind and financial security for employees throughout their lives.

This fall, as Americans are thinking about their finances, consider how offering a retirement solution, such as an RRA, could attract and retain employees now and into the future.

Kevin Robertson is Chief Revenue Office at HSA Bank. More information on RRAs is available here.