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Workers with ongoing retiree healthcare benefits might feel like they’ve got a golden ticket, but they should prepare a backup plan — those benefits are not guaranteed.
Retirement Tip of the Week: If you’re lucky enough to have health benefits as a retiree, enjoy them. But plan for the worst-case scenarios, like those benefits changing or disappearing, just in case.
Employer-offered retiree healthcare benefits, unlike programs such as the 401(k), are often not protected. There’s no federal law that requires employers to keep these benefits intact, the Department of Labor said, unless the employer has specifically promised to maintain the program. This is applicable to both private and public plans.
These plans can change just as they could during one’s career, said Nicholas Bunio, a certified financial planner. “Realistically, they can and do change every year,” he said.
Take for example New York City’s healthcare benefits for its 250,000 retired city workers. The city is currently trying to to change its retiree healthcare benefits by moving retirees from their traditional Medicare plans to a Medicare Advantage plan. If the change is approved, retirees would have to pay $191 per month to keep their current coverage. A judge recently blocked the change, at least temporarily, in favor of retirees’ complaints.
Public workers eligible for early retirement, such as at age 57 or 62, should be especially vigilant, as they aren’t yet eligible for Medicare, which is available beginning at age 65, said Anthony Randazzo, executive director of Equable, a bipartisan nonprofit focused on public retirement systems. “Anyone who is planning to retire before Medicare eligibility, those people should have a backup plan in case something happens,” he said.
Healthcare benefits can be actual insurance coverage offered below market rates, or a stipend for medical expenses, but they’re not guaranteed, said Brian Schmehil, managing director of wealth management at The Mather Group. “Employers have no legal obligation to maintain these benefits,” he said. “When they get pulled from a retiree, it can come as a shock. It should cause you to re-evaluate your retirement plan to see if the additional costs may put you at risk and if so, what may need to change.”
Just as with any other type of insurance, retirees should stay abreast of potential changes, especially before open enrollment periods begin. If they’re relying primarily on employer-based retiree health benefits, they should also consider creating a separate savings account or earmarking some of their retirement income toward future medical expenses, in the event they’ll have to pay more for their coverage later in life.
Retirees can also monitor state legislature or local board meetings, where city members might address healthcare benefits on the agenda. “Pay attention to any updates that may come three months or so before annual premium renewals or open enrollment,” Randazzo said. “That’s when you’re likely to see updates.”
