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The Future of Retirement Health Insurance: Trends and Innovations

A major concern for many retirees is the cost of medical care in retirement. Indeed, more than 80 percent of respondents to an RBC survey told the bank that they were worried about how they will pay for health care in retirement. However, only 56 percent said they had factored this cost into their financial plans.

Employers are concerned about the growing burden of healthcare costs, and some have started to change their approach to retirement benefits. For example, in recent years some firms have introduced private health exchanges to give workers the option of purchasing their own insurance through a private marketplace see sidebar.

Other changes include moving from defined benefit to defined contribution retirement plans and introducing health savings accounts and flexible spending accounts to control healthcare costs. In addition, many firms have begun to offer part-time work for some older employees as a way to help control costs and maintain access to their retiree health Get the details coverage.

Many of these trends reflect the impact of the aging workforce and the rise of high-cost medical care. As a result, many employers have reduced the richness of their retiree health insurance packages. As a result, retirees are increasingly forced to either buy expensive medigap coverage or go without medical services.

Several studies have examined the prevalence of retiree health coverage in the past decade. Results vary somewhat because different studies use different samples, different years of data and differ in the definitions of firms used in the surveys. However, the general trends seem clear. The availability of employer-sponsored retiree health coverage has declined significantly since the late 1980s, and this trend continued after implementation of SFAS 106 in 1993. The decline has been less dramatic for early retirees than for Medicare-eligible retirees, but the overall offer rate is still significantly lower than in previous years.

The future of retirement health coverage will depend on the success of public and private efforts to control healthcare costs. Unless the rate of growth in medical costs slows, the number of firms offering retiree health insurance will continue to fall, and those that do will likely reduce the generousness of their coverage.

Milliman’s long-term medical and demographic trends, combined with the Getzen-SOA trend model and aging trend, indicate that increasing healthcare costs will continue to drive the decline in retiree health coverage. This is especially true for large firms, where retirees tend to receive more generous coverage than those at smaller companies.