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The HSA In Your Future: Defined Contribution Retiree Medical – Part 1*

By Jack Towarnicky

On May 22nd in Dallas Texas I will be presenting this topic at the World at Work, Total Rewards Conference.  This is a preview of that presentation which starts by focusing on:  

  • The projected range of post-employment medical coverage costs; 
  • The decline in employer-sponsored retiree medical coverage; 
  • The limitations on alternatives for tax-preferred funding of retiree medical coverage (VEBA, IRC§401(h), HSA);
  • Why expansion of taxpayer-funded Medicare and Medicaid benefits are not likely; and 
  • Why new state coverage initiatives are not likely.

In today’s challenging global competitive cost environment, few employers have the resources to add new, traditional benefit plans. Similarly, those public and private employers who already offer retiree medical coverage are searching for cost reducing alternatives. For private employers, it is all about efficiency. For public employers, retirement benefits are in clear conflict with other public priorities – education, Medicaid, infrastructure, etc.  

We may see noteworthy growth in a different type of retiree medical – particularly among employers who do not offer retiree medical coverage today. Yes, the next employee benefits innovation may be a “back to the future” addition of retiree medical coverage – where that strategy reduces expense and provides access to coverage which also offers the most valuable benefits tax preference offered by the tax code!  

This variant will, however, likely be limited to Medicare-eligible retirees, using a Medicare Advantage or Medigap exchange, where coverage is retiree pay all - financed by accumulated Health Savings Account assets. Plan sponsors may only pursue this alternative if it lowers the cost of existing health coverage while improving employee and retiree engagement. So, this alternative is all about reducing expense while improving both the real and perceived value of the Total Rewards Package. 

I will encourage you to consider:   

  • Adding retiree-pay-all, employer-sponsored Medigap coverage and/or Medicare Advantage options, 
  • Ensuring all active employees have access to a well-designed Health Savings Account qualifying option, and 
  • Joining PSCA to advocate for the introduction of a Health Savings Account-qualifying Medicare Advantage option. 

We think it is time for you to leverage available tax preferences and enhance the value of your Total Rewards program. Time for you to get out ahead of the curve and to get ahead of the wave.  Learn from the first movers and fast followers how they have already achieved success.  Other employers have done it.  You can too!

* This is one of two presentations scheduled for the World at Work, Total Rewards Conference.  The other presentation is titled:  Qualified Plan Loans: Evil or Essential.  In a future post, I will preview that presentation as well.  Articles on both topics have been published – The HSA in Your Future article was part of the Fourth Quarter 2016 issue of Benefits Quarterly.  The Qualified Plan Loans article was included in the Second Quarter, 2017 issue of Benefits Quarterly.  After the conference, I will post more details on each topic.   

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