Understanding the Basics

Company-Sponsored Retiree Medical Coverage

You may be entitled to the same health plan benefits you had prior to leaving the company. Many companies that offer retiree medical benefits allow you to continue coverage at the same cost as if you were still employed by the company. Some companies will even pick up the full cost of coverage once you reach age 65. (This may even include your premiums for Medicare Part B coverage.)

But it's important to understand that a company is not obligated to keep employees on their medical plan once they reach age 65. It all depends on company policy. Typically, if the company does cover you, they're only supplementing your Medicare coverage once you reach age 65. While you might think this probably doesn't amount to much, you'll realize how valuable this coverage is after you read the section on Medicare.

If you're planning to retire prior to age 65, and your company allows you to continue coverage on their plan, you may bear the full cost of medical coverage over and above what you normally would pay as an employee. If you have a spouse who turns age 65 before you do, the nature of the coverage (and premium amount) will typically change from primary to secondary (meaning claims are submitted first to Medicare).

IMPORTANT NOTE: The retiree coverage you have today may not be guaranteed to continue; most companies reserve the right to cancel or modify their current plan at any time.

What if you retire and you're not eligible for retiree health plan benefits and you're not age 65? You can certainly shop for an individual health insurance policy, but you may not find the policy quite as comprehensive. And the cost will likely be considerably more than you are used to paying. (Note: Once you reach age 65, you are eligible for Medicare and should then evaluate Medicare Advantage or the traditional fee-for-service Medicare combined with a Medigap Policy. Refer to Medicare and Medigap section).

Another option may be to elect COBRA coverage through your employer. This basically allows you to continue your company medical plan for 18 months (longer for certain disabled beneficiaries) after you leave your job. However, the company can require you to pay the premium plus an administration charge, which combined cannot exceed 102% of the cost to the plan for coverage. So while you may be paying more for the same coverage than you paid as an employee, you guarantee continuity of coverage for you and your dependents.

Your employer will notify you of your right to elect COBRA coverage. You have 60 days from the date of the COBRA notice to elect coverage. Although that is quite an attractive grace period, we recommend that you investigate all your options prior to retiring, which means shopping around so that you can make a fully informed decision.

For employees with spouses: Your spouse may not reach age 65 at the same time as you. If you are eligible for retiree benefits, chances are the medical coverage for your spouse and/or eligible dependents will remain unchanged, as long as you pay the current contributions. If you are not eligible for—or your company does not offer—retiree benefits, then your spouse or eligible dependent may elect COBRA coverage for 18 months if they are not covered by another group health plan.

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