Retirement health care costs: Putting them on employees’ radar guarantees a stress-free exit

Choosing the right health plan–one that works best for a specific individual or family–remains one of the most difficult decisions most adults will make. And the choice doesn’t get any easier just because someone is about to retire.

For employees approaching retirement age who have been covered by a plan at work, the idea of aging out of the workplace plan can be daunting. Employers can help ease the transition if they have the right resources. If they don’t, they could well be offloading a high percentage of their loyal workers onto the wrong retirement health plan. When that happens, one’s golden years can be tarnished by unnecessarily high insurance and medical expenses.

Various studies in recent years have confirmed this confusion that confronts the newly retired. Recently, Healthcare.com released results of a survey of more than 1,000 U.S. adults ages 65 and older. The survey asked them about their ability to meet health care costs and what actions they were taking to reduce spending. In general, respondents proved to be underprepared for the cost of their health care, and uncertain about how to manage their health going forward.

That’s where employers can make a difference now with their plan members who are approaching retirement age. Offering pre-retirees expert advice on choosing the right retirement plan can not only better serve former employees in their retirement, but could encourage some workers to retire earlier than they may have planned. In other words, take the fear out of exiting the company plan, and more will choose to leave it.

Bring in the expert

Employers need an expert to guide pre-retirees, whether that person is on staff or an outside advisor. Why? Because identifying the proper coverage is an intense, one-on-one process. A process few employers are equipped to effectively manage.

“You absolutely want somebody knowledgeable who can explain the consequences of each choice, because there is no perfect choice,” says Allison DePaoli, founder and owner, Altiqe Consulting, a benefits advisory firm. “Everyone’s situation is unique. The good advisor is the one who thinks about who is on the plan, and what their individual needs are.”

Since most employers do not have a staff Medicare expert, the best option would be a Medicare benefits advisor. One place they can be found: The National Association of Benefits and Insurance Professionals, formerly the National Association of Health Underwriters. The nonprofit boasts more than 100,000 licensed health insurers and consultants. Its mission is to help consumers make the right insurance plan choices for themselves.

We spoke to two Medicare consultants: Michael Friedman–”Medicare Mike”–and Sean Willingham–”The Medicare Man.” Friedman is the Medicare Advisor for Combs & Company. Willingham frequently partners with DePaoli an Altiqe to advise sponsors and their plan members on Medicare strategies.

Both consultants emphasized the importance of one-on-one meetings with pre-retiree plan members. Group sessions–even small groups–don’t work, because each person’s situation requires a customized solution.

Too many choices

Willingham shared the example of a 64-year-old employee who was referred to him. She currently is employed by a large company that provides health insurance for her. She does not have a health savings account, and wants to retire soon after she turns 65.

Concerned that she might make the wrong choice once she moves off the company plan, she  was referred to Willingham by other employees he has counseled. She was awash in plan options, from the many Medicare Advantage plans to the many Medicare alphabet parts, and Medicare supplemental coverage. She was overwhelmed.

As often happens, even this bright, extremely well-prepared plan member harbored basic misconceptions about life after the sponsor’s plan. She assumed she had to sign on for Medicare Parts A & B as soon as she retired. Wrong, Willingham said. He then walked her through a series of guidelines posted on healthcare.gov which narrowed her choices so that she could calmly select a strategy for moving into the post-retirement health insurance world.

“This has to be done one-on-one with each employee because there are too many turns in the road as you narrow your choices,” he said.

Friedman has seen the fear in the eyes of those approaching retirement.

“Everything around Medicare is very fear driven,” he said. “I tell people, ‘Let’s take a breath. We’re going to take logic and reason, and throw them out the window. Then we’re going to show you how to get to where you want to be.’ My role is to educate people on Medicare so it isn’t as scary as it can be.”

Both consultants say people  worry unnecessarily about missing the deadline for Medicare enrollment. For most plan members, the normal Dec. 7 deadline for plan enrollment does not apply for Medicare enrollment. They have a full eight months to enroll once they have retired.

Advantage v. original Medicare

Other factors to consider: Do they have a younger domestic partner on the company plan? Have they been socking money away in a health savings account for years? (That’s a good thing overall but does have Medicare consequences.) Will they be liable for a Medicare Part A premium? (Most with a company of 20+ employees are not.) How long will they continue working after age 65? What is their health status? Can they afford Medicare Part B’s premium? The Advantage Plan premium? Which is better for them: Advantage plan or Medicare supplemental coverage?

There are pros and cons to each of these. A Medicare expert can walk plan members through the maze of factors, arriving at the right combination of plans and enrollment dates to ease the path to retirement.

Example: Friedman said many retirees assume they need a Medicare Advantage plan, and opt for one instead of Medicare supplemental. But for some, the Advantage plans aren’t the best choice. While they offer convenience and generally have “extras”–vision, dental, hearing care–Advantage plans have drawbacks.

They can be more expensive. They often restrict the member to their own network, making out-of-network referrals difficult. Some studies have shown that Advantage plan members don’t always choose the highest quality providers for their medical care. Original Medicare members can select any providers and facilities that accept Medicare.

“Choosing the right plan for retirement involves so many factors,” Friedman said. “That’s why we are there to empower people to make a mindful Medicare decision.”

Beware the Part B deadline

Willingham warned that there is one “common trap” that the unwary retiree can fall into.

If a plan member has any type of continuation coverage, like COBRA or health coverage as part of a severance package, the deadline for enrollment can be tricky. It’s still eight months–but the clock starts when active employment ends.

“People get a severance package, say it includes health coverage for two years, and so they stay on the group plan,” Willingham said. “They don’t know that the deadline for Medicare Part B enrollment is eight months from the time they retired as an active employee. When their coverage ends after two years, that’s when they find out they missed the deadline.”

Related: Only 64% of Medicare beneficiaries know when the yearly enrollment period is, survey finds

There’s a stiff penalty for missing that deadline, a 10% increase to the Part B premium that is added to the premium every year the person is enrolled in Part B. That can add up, just when someone is least well equipped to handle an escalating health insurance surcharge.

Willingham said the Part B penalty is patently unfair, because it penalizes people who had insurance and are simply switching to Medicare. He said doing away with the Part B penalty is high on the list of the National Association of Benefits and Insurance Professionals’ legislative objectives for next year.

Many pre-retirees assume their plan sponsor, or the company’s HR department, will be there to help them transition to post-retirement health care. Most employers simply are not equipped to walk each individual through the Medicare/Medicare Advantage Plan labyrinthe. Employers can help earlier in a plan member’s career by offering financial planning as a benefit; by encouraging a better understanding of how HSAs work; and by offering education on prescription drug affordability strategies.

But when it comes to that pre-65 decision-making window, sponsors will do themselves and their employees a serious solid by making a Medicare expert available.