Demystifying Retiree Health Insurance Policies for Individuals Over 65

The majority of Americans rely on employer-sponsored retiree health coverage as the primary source of postretirement medical protection. It covers the cost of prescription drugs, hospital stays, and other ambulatory care services. It also helps pay for Medicare deductibles, copayments, and coinsurance, as well as some preventive care and health screenings. In addition, retirees can often purchase additional coverage to fill gaps in Medicare’s benefits, such as eye care and dental treatment.

While many retirees take advantage of the opportunities offered by their former employers’ retiree health plans, some do not. In fact, a number of studies have shown that retiree health coverage is declining. This trend is expected to continue as retirees become older and fewer firms offer this benefit.

Moreover, the types of employer-sponsored retiree health coverage vary by firm size, region, and industry. For example, in 2000, larger firms (defined here as those with 200 or more employees) were significantly more likely to offer retiree health coverage than smaller firms. Firms in selected industries (construction, wholesale, retail, finance) and those that employed workers earning more than the average wage were also more likely to provide retiree health coverage than others.

Furthermore, the availability of retiree health coverage varies by whether the firm is private or public. Government and non-profit organizations are more likely to provide retiree health coverage than privately held firms, which are less likely to do so. Programs that require retirees to contribute higher premium contributions than those who are not Medicare-eligible may violate the Age Discrimination in Employment Act of 1967 and can lead to expensive litigation.

While it is not possible to determine exactly why employer-sponsored retiree health coverage is declining, a number of factors are probably responsible. These include: rising premium costs, a slower economy, judicial challenges, and an uncertain Medicare+C program and policy agenda.

As these factors continue to weigh on the availability of employer-sponsored retiree health insurance, more early retirees are expected to delay their retirement and seek out work in larger firms that are more likely to offer retiree health coverage. It is also anticipated that more of those who do retire will opt to enroll in Medicare at the time they turn 65 rather than wait for their employer-sponsored health plan to terminate and the open enrollment period to begin.

To avoid penalties, most retirees should apply for Medicare during their Initial Enrollment Period (IEP), which begins three months before their 65th birthday and continues for an additional three months. If a retiree misses this opportunity because they are still covered by group health coverage through their former employer or union, it is possible to enroll during a Special Enrollment Period. But be aware that doing so may impact future eligibility for other types of coverage, such as the Retiree health insurance policies for individuals over 65 marketplaces created by the Affordable Care Act. Those who do not enroll in Medicare at age 65 can buy private insurance through the health insurance marketplaces for a fee, depending on their income and household size.