Taking Care of Mom and Dad: When Your Parents Have to Pay
Any sort of arrangement in which a private-sector employer sponsors retiree health coverage -- regardless of how much of that coverage the employer pays for -- is referred to as an employer-sponsored benefits plan. The employer retains the duty to administer the plan; it has to determine the benefits provided and how much participating retirees have to pay. But it's up to the retiree to decide whether to participate...and how to get the best out of the plan.
Being in an employer-sponsored group health plan, is always the cheapest way to go. Paying for health coverage on your own, as an individual consumer, can get very pricey...if it's available at all.
The amount that your parents have to pay in an employer-sponsored plan can depend on many things: their age, length of service with the employer, the package of benefits they select and how much the employer will kick in.
What would your parents pay if they don't have access to an employer-sponsored plan? A 55-year-old woman in good health might pay $250 a month for coverage under a standard preferred provider organization (PPO), in which beneficiaries generally see specified doctors but can go out of the network at higher cost. A 63-year-old male smoker could face premiums of $600. A retiree with diabetes, arthritis or heart disease might find it difficult to get coverage at all.
For worst-case scenarios, federal law requires that full insurance be made available to those applying within 63 days of leaving an employer-sponsored plan. When coverage under the group plan ends, your parents may continue coverage for 18 to 36 months, depending on why the coverage ended.
The federal law that controls these matters is called the Consolidated Omnibus Budget Reconciliation Act (COBRA). Therefore, these benefits are typically called "COBRA coverage."
If your parents have retired without medical insurance, they can usually pay for COBRA coverage for 18 months. If one of your parents stops being eligible for COBRA coverage because he or she qualifies for Medicare, the other parent can continue COBRA coverage for up to 36 months. If your parents continue coverage, they usually have to pay 102 percent of the employer's cost (the extra 2 percent helps cover the employer's administrative costs) each month.
The actual form of COBRA coverage can be anything -- traditional indemnity insurance, an HMO or something in between. It is simply the same insurance that the employer provides to other employees or retirees; the only difference is that your parents are paying for their coverage themselves.
Knowing how the system works and being experienced in shopping around can make a difference. This is especially true for people who are under 65; whether through a group plan or otherwise, they will have to find some form of private insurance. In most cases, COBRA coverage from a former employer will be the best option.
Research indicates that consumers often don't know what type of health plan they currently have. In general, they don't know how managed care plans work and are not knowledgeable about the intricacies of health benefits. Many are also unaware of, or indifferent to, the potential for financial disruption in their lives following a sudden illness or injury.
It's important to understand the differences in coverage, enrollment options and the possible financial consequences of failing to plan adequately for health care. This is why you need to know what kind of coverage your parents have. They may not even know -- and may come to rely on you for guiding them down the right path.
Age, health and habits all affect the cost of insurance. But, more important these days, is the amount an employer (or former employer) is willing to contribute. According to Mercer Human Resource Consulting, 77 percent of U.S. companies employing more than 500 workers offer no health benefits in retirement to employees who retire at age 65 or older. And of those that do offer coverage:
- 22 percent of employers pay all costs;
- 47 percent offer plans where the worker shares the costs; and
- 31 percent offer plans in which the retiree pays all the costs.
The portion of retiree medical benefits that even the most established companies provide is a changing thing. Consider the example of retailing giant Sears, Roebuck and Co. In the 1990s, Sears began to reduce the amount it would pay for medical benefits to retirees. It started by freezing the dollar amount it contributed to prescription drug costs and catastrophic medical expenses. The company then capped its plans in 1996 for pre-1996 retirees as well as the amount for post-1995 retirees. For those who retired after 1995, Sears cut the amount it paid for retirees' spouses from 100 to 50 percent of the amount it contributed to the retiree's medical coverage. Finally, Sears stopped subsidizing health care coverage after age 65 for employees who retired after December 31, 1999 -- which meant these people had to pay 100 percent of the cost of their medical benefits.
The steady rise in the cost of prescription drugs and health insurance has crippled retiree benefits programs. And, without significant structural changes, there's little chance of a cure in the near future.
As we've seen before, the laws regarding companies' obligations to their retirees do not favor workers. The Sears retirees formed the National Association of Retired Sears Employees and fought their former employer over the cutbacks. But a judge ruled in March 2002 that Sears's benefit plan enabled it to make cuts at any time.
Meeting the challenges of today's struggling health care market when it comes to taking care of mom and dad is tricky. They may have already lost some of their coverage, such as an employer-paid plan, making it more work for you to ensure their health care safety. And, if they've never had any employer-paid plan, they have to turn to other options.
