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The HSA in Your Future: Defined Contribution Retiree Medical Coverage - Part 2


The Real Retirement Coverage Crisis – the Second of Three Posts 

Please stand up if you are currently working.  Now, sit down if you are not eligible for a tax-favored retirement savings plan.  

Why are you sitting?
Every worker should still be standing.  Every worker has had access to a tax-favored retirement savings plan since 1982.  Yes, you, and you, and you, and you.  No exceptions!  Since the Economic Recovery Tax Act of 1981, every American worker has been “covered” – he or she has been eligible to contribute to an Individual Retirement Account (IRA).  If the IRA isn’t enough for you, seek out one of the hundreds of thousands of U.S. employers who sponsor a tax-qualified plan - a §401(k), §403(b), §457, §401(a) or a §408.   Many of them are members of my association – the Plan Sponsor Council of America.  

But, America does have a retiree medical coverage crisis.  

According to the U.S. Census Bureau, there were 6.7 million (6.7MM) U.S. employers in 2013.  According to an annual Kaiser Family Foundation study, only 24% of employers with 200 or more employees offer retiree health coverage (and many of those don’t offer retiree coverage to new hires).  The percentage of smaller employers offering retiree medical coverage is much, much less.  Bottom line, more than 6 MM U.S. employers do not offer employer-sponsored retiree medical coverage.  And, the coverage crisis is even worse when it comes to saving for retiree medical costs.  You can probably count on your fingers and toes the number of employer-sponsored retiree medical plans that are fully funded.  Most are totally unfunded.  Just as bad, most employers do not provide employees access to the only truly tax preferred retiree medical savings option – a Health Savings Account (HSA).        

Depending on which benefits surveys you read:

  • Less than 25% of American workers can enroll in HSA-qualifying health coverage, 
  • Less than 75% of those who are offered HSA-qualifying coverage choose that option,  
  • Of those enrolled in HSA-eligible coverage, less than 75% contribute to the HSA, and 
  • Less than 10% of those enrolled consistently contribute more than what they project they will spend on current year, out-of-pocket medical expenses.  

So, less than 5% of America’s workers have access to and save on a tax-favored basis for future medical expenses – including HSA-qualifying expenses like employer-sponsored Medicare Supplement and long term care insurance premiums, and/or for acute care, prescription drug and long term care out-of-pocket retiree medical expenses!    

Wanna resolve the real retirement coverage crisis?  Offer your employees a HSA-qualifying medical coverage option and offer your retirees (however you want to define retiree), a retiree-pay-all Medicare Supplement coverage option.    

In my last post on this topic, I will confirm how you can resolve the retiree medical preparation crisis.