Taking Care of Mom and Dad: Private Retiree Health Plans

Traditionally, private-sector medical insurance provided by the company or firm where a retiree used to work was the highest-quality health coverage available to older Americans. But retiree benefits are among the first things to go when cash-strapped companies look to cut costs. Through the 1990s and 2000s, reductions in the retirement benefits companies offer have forced many people to rely on government programs and personal savings to pay for their medical care.

Still, if your parents worked for a large employer for a good part of their career -- and retired from that large employer -- they may have medical coverage provided by that company. Benefits from this coverage can be substantial, especially the prescription drug coverage that is not covered by government plans. Unfortunately, few companies want to deal with the rising costs of health coverage for older people. Plus, the government has never offered tax-advanatged funding vehicles (as it does for pensions) which could help pay for retiree medical benefits.

This hard truth, combined with an early 1990s accounting rule that forces companies to write off future medical obligations against current profits, means private-sector medical benefits are often reduced from what they used to be.

Some companies are getting downright ruthless, questioning the wisdom of providing benefits to former employees who no longer contribute to the bottom line.

Courts have generally sided with companies in suits brought by angry retirees who've lost their benefits. In 1998, a federal Court of Appeals in Ohio ruled that General Motors had the right to change health benefits for 50,000 former workers -- even though they'd taken early retirement based on company promises of free lifetime health insurance. While some documents given to workers made the promises, the court said, others mentioned GM's right to change benefits at any time in the future.

Bottom line: You can't count on an employer to provide your parents with the benefits they'll need in retirement. In many companies, retirees are forced to pick up a portion of the bill and absorb all rising health care costs. A growing number of companies require retirees to pay the full amount of their medical benefits premiums.

In most cases, companies modify the benefits they offer retirees to so-called Medigap coverage. This means that the retiree has to use government insurance (Medicare) and the company pays for (or makes available at a discounted price) additional insurance that covers the things that the government plans don't.

These Medigap plans highlight one major issue for retirees: They can pit people under age 65 against those over age 65. In most situations, government health coverage is only available to people who are either seriously disabled or over age 65; so, private-sector companies may end up offering different benefits to retirees on the different sides of 65.

Depending on the specific collective-bargaining rules and benefits laws that apply to a given company or employee group, these different levels of health coverage can be legal. Even so, they can be unpopular. Older retirees often complain that younger, healthier retirees get health insurance that's like what active employees get -- while everyone over 65 gets lower-cost Medicare-plus-Medigap coverage.

The government has encouraged this change by mandating that Medicare is a secondary payor of benefits if the employer offers any other form of health coverage. This means that Medicare only covers medical costs not covered by other insurance offered by the employer. So, most employers offer no other insurance.

But even this issue is fast becoming moot, as companies move away from paying for even Medigap coverage. According to the Employee Benefit Institute, only about 10 percent of retirees have employer-paid Medigap protection. The reason: Due to the increases in cost, employers aren't paying for any retiree medical benefits.

In most cases, by the time you need to step in to help your parents manage their affairs, they will have already reached 65 -- whether they have employer-paid benefits or not. So, the questions you need to ask are relatively simple:

• What kind of medical insurance your parents have?
• Is more or better coverage available to them?
• Would you know if your parents suddenly lost employer-provided supplemental coverage and don't have the means to pay for it themselves?

If you and your parents don't know the answer to that last question, it's probably worth investigating. Contact the benefits administrators at the company (or companies) where your parents worked and find out what coverage is available.

While two-thirds of all companies with 200 or more employees provided retiree health benefits in 1988, fewer than half were providing it in 1993. By the early 2000s, fewer than one-third provided retiree health benefits to people under 65, according to Mercer Human Resource Consulting.

In many cases, companies rely on the lack of information they provide their retirees to obscure what coverage is available and -- more specifically -- what coverage may be taken away. They won't actively mislead people about what's available (benefits laws forbid that); but they'll count on people simply not understanding what's available and not asking. So ask.

Imagine that your 70-year-old dad loses his company-paid Medigap insurance and turns to you for help. He's taking expensive medications to lower his blood pressure. Medicare won't pay for these things. He swallows his pride and asks you for financial help. You agree and look into getting him Medigap coverage.

The company where he used to work used to provide Medigap coverage to retirees. It doesn't anymore; but it does allow retirees to buy their own Medigap at a lower, group rate. You don't know this...and your dad never read the brochure explaining it. A call to the company to find out exactly what's available could save you thousands of dollars.

So, ask some background questions:

• Do your parents currently have employer-paid retiree medical benefits? If so, what do they cover and how long will they last?
• Does their current coverage sufficiently cover both of your parents and all of their needs?
• If your dad has the employer-paid benefits, does it cover your mom as well? Sufficiently?
• If your parents haven't reached 65, do they have enough coverage to sustain them until they qualify for Medicare?
• Can you get a written promise from the employer that their coverage won't be subject to change?

The worst that could happen is they lose coverage before they qualify for Medicare...or they can no longer get group coverage -- even if they pay for it themselves.

Don't be afraid to ask your mom and dad these critical questions -- and then call the companies where they worked and talk to the benefits or human resources departments -- before making decisions, buying expensive policies or forgetting to renew old policies.

There is a lot of redundant or repetitive health insurance sold to people as they transition from work to retirement.

These questions may seem awkward or uncomfortable at first; but they're necessary. As we'll see throughout this book, it's essential to maintain an open conversation between you and your parents. It's important for you to have a clear sense of where your parents are with regard to their health benefits and options.

Convincing your parents to share this information may require patience. You might start by asking your parents if they know what kinds of coverage they have. The point is that someone has to take an inventory. Not only can medical benefits change, but the medical needs of your parents will most definitely change as they get older.

Things to Do:

• Inventory your parents' medical coverage (what they have, what they qualify for, etc.).
• List basic needs and most common medical expenses (vision, drugs, outpatient treatments, etc.).
• Get to know available options.
• Talk with your parents about what they want and how much they can spend.